Question: Please show how you solved it!! Two years ago you purchased a bond that has a par value of $ 1,000 and pays an annual
Please show how you solved it!!
Two years ago you purchased a bond that has a par value of $ 1,000 and pays an annual coupon rate of 7% (coupon payments occur semiannually at the end of each semiannual period). You purchased this bond at the market price right after it made its coupon payment. At the time of the purchase, the bond's current yield (CY) was 7.2%, and the bond had exactly 5 years left to maturity. You held the bond for 2 years and sold it at the market price immediately after receiving the fourth coupon payment. At the time of the sale, the bond's yield-to-maturity (YTM) was 7.5%, stated as an APR. What is the total return in dollars (undiscounted dollar amount) you earned on the bond investment over the 2-year holding period from the coupons and the price change? State this total dollar return in percent relative to the amount invested. Assume that coupon payments are not reinvested. Following the industry convention, here and in the following question, the coupon rate is stated on an annual basis. For example, a coupon rate of 10% on a bond with a par value of $1,000 implies that the annual amount of coupon payments is $100 (10% of $1,000), which is paid in two semiannual installments of $50 each. When solving for the coupon rate, please state it in the same manner (i.e. on an annual basis). The current yield (CY) is stated based on an annual coupon and the market price of the bond. For example, a current yield of 10%, given a bond market price of $900 implies that the amount of annual coupon is $90 (10% of $900), i.e. that the bond makes two semiannual interest payments of $45 each
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