BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

BOND RETURNS Last year Janet purchased a $1,000 face value corporate bond with an 8% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 10.45%. If Janet sold the bond today for $820.17, what rate of return would she have earned for the past year?

Summary Introduction

To identify: Rate of return earned in past years.

Bond Valuation:

Bond valuation refers to the evaluation of bonds value at any point of time which can be used for decision making. Valuation of bond is done for comparison and analysis.

Explanation

Given,

Coupon rate is 8% or 0.08.

Par value of bond is $1,000.

Maturity is after 15 years of bond.

Yield to maturity 10.45%.

Present value (current price) of bond is $820.17.

Calculated values (working note),

Purchase price is $890.

Formula to calculate rate of return,

Rateofreturn=(SellingpricePurchaseprice+Couponreceived)Purchaseprice

Substitute $820.17 for selling price, $818.34 for purchase price and $80 for coupon received

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Should an economic model describe reality exactly?

Brief Principles of Macroeconomics (MindTap Course List)

What is a corporations legal capital, and why is it important?

Intermediate Accounting: Reporting And Analysis

PROJECT RISK ANALYSIS The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Eac...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)