Question: Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity)

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decrease from 20 to 16 percent.

Refer to Table 10-1, which is based on bonds

a. What is the bond price at 20 percent?

Bond Price____

b. What is the bond price at 16 percent?

Bond Price____

c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Return on Investment _____% Loss or Profit?

Table 10-1 Bond price table Yield to Maturity Bond Price + + 2% 4% 6% 7% 8% 9% 10% 11% 12% 13% 14% 16% 20% 25% (10% Interest Payment, 20 Years to Maturity) PV of PV of Coupons Principal $1,635.14 + $672.97 1,359.03 456.39 1,146.99 + 311.80 1,059.40 + 258.42 981.81 214.55 912.85 178.43 851.36 + 148.64 796.33 124.03 746.94 + 103.67 702.48 + 86.78 662.31 72.76 592.88 51.39 486.96 26.08 395.39 11.53 + + + + $2,308.11 1,815.42 1,458.80 1,317.82 1,196.36 1,091.29 1,000.00 920.37 850.61 789.26 735.07 644.27 513.04 406.92 + + + + + + +

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