Asked Sep 19, 2019

You buy a 20-year bond with a coupon rate of 8.8% that has a yield to maturity of 9.8%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 10.8%. What is your return over the 6 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)


Expert Answer

Step 1

Face Value (FV) = $1,000

Annual Coupon Rate = 8%


Calculation of semi-annual coupon payment:


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Semi-annual Coupon Payment = Face Value x Coupon Rate 2 8% =$1, 000 x 2 = $1, 000 x 4% = $40

Step 2

Face Value (FV) = $1,000

Annual Coupon Rate = 8%

Semi-annual Coupon Payment (pmt) = $40

Yield to Maturity (rate) = 9.8%

Time Period = 20 years

Number of payments per year = 2

Time to Maturity (nper) = 40


Calculation of Buying Price of Bond using Excel PV Function:

To open the "PV function" window - MS-Excel --> Formulas --> Financials --> PV.


Image Transcriptionclose

=PV PV(rate, nper, pmt, [fv], [type] |=PV(9.8%/2,40,40,1000) (S843.43)

Step 3

Hence, the buying price o...

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