PLEASE EXPLAIN HOW TO CALCULATE ANSWER USING A FINANCIAL CALCULATOR.

Today is January 31st, 2014. Suppose you purchased a 30-year bond exactly 20 years ago when it was issued for $1000. It has a par of $1000 and makes annual coupon payments (10% coupon rate). You decide to sell it today, right after the coupon payment is paid. What price can you sell the bond today if the yield to maturity is a) 10%, b) 12%, and c) 8%

ANSWERS:

a= $1000

b= $887

c= $1134.20

For the data in previous problem, answer the following questions for each YTM (12%, 10%, and 8%)

a. Calculate the (expected) price of the bond exactly one year from now right after the coupon payment is made on January 31st, 2015.

b. What is the (expected) price of the bond one year from now right before the coupon payment is made on January 31st, 2015 (assume everything else remains the same).

c. What returns can you expect from Jan 31st 2014 to Jan 31st 2015 (right after interest payment) ignoring the possibility of bankruptcy? How much of this return is from interest payments (current yield) and how much is from capital gains (capital gains yield)?

d. Calculate the price in 2024 right after the last interest is paid and right before the bond matures