You have just purchased a five- year maturity bond for $ 10,000 par value that pays $ 610 in coupon interest annually ($ 305 every six months). You expect to hold the bond until maturity. Calculate your expected total return if you can reinvest all coupon payments at 5 percent (2.5 percent semiannually). Suppose, instead, that you plan to sell the bond after two years when you expect that a similar- risk three-year bond will be priced to yield 5.2 percent to maturity. Calculate the expected sale price of the bond and your expected total return using the same reinvestment rates. Explain why the two calculated total returns differ.
Answer to relevant QuestionsYou are planning to buy a corporate bond with a seven year maturity that pays 7 percent coupon interest. The bond is priced at $ 108,500 per $ 100,000 par value. You expect to sell the bond in two years when a similar risk ...Six years ago you placed $ 250 in a savings account which is now worth $ 1,040.28. When you put the funds into the account, you were told it would pay 24 percent interest. You expected to find the account worth $ 908.80. ...Assume that you manage the interest rate risk position for your bank. Your bank currently has a positive cumulative GAP for all time intervals through one year. You expect that interest rates will fall sharply during the ...Consider the following asset and liability structures: County Bank Asset: $ 10 million in a one- year, fixed- rate commercial loan Liability: $ 10 million in a three- month CD City Bank Asset: $ 10 million in a three- ...Assume that you own a $ 1 million par value corporate bond that pays 7 percent in coupon interest (3.5 percent semiannually), has four years remaining to maturity, and is immediately callable at par. Its current market yield ...
Post your question