a. You are considering purchasing a bond that has 4 years to maturity with 6% coupon rate.Comparable investments are expected to provide 4% annual return. How much would you pay for this bond? Answer is: 1070.60 b. You purchased the bond in the previous question - 4 year 6% coupon bond - at the price of $ 1072.60. You plan to hold the bond until the bond matures. What is the annual rate of return from the bond investment? c. You bought the bond in Q1 - 4 year 6% coupon bond - at the price of $1072.60. Now, instead of holding it for the next 4 years, you plan to sell it in 2 years at the price of $1070. If your plan works out, what is the annual rate of return from your 2-year investment?

a. You are considering purchasing a bond that has 4 years to maturity with 6% coupon rate.Comparable investments are expected to provide 4% annual return. How much would you pay for this bond? Answer is: 1070.60 b. You purchased the bond in the previous question - 4 year 6% coupon bond - at the price of $ 1072.60. You plan to hold the bond until the bond matures. What is the annual rate of return from the bond investment? c. You bought the bond in Q1 - 4 year 6% coupon bond - at the price of $1072.60. Now, instead of holding it for the next 4 years, you plan to sell it in 2 years at the price of $1070. If your plan works out, what is the annual rate of return from your 2-year investment?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 2 3 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 C. Years 0 1 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 + $6.19 $6.19 $6.19 $104.27 Cash Flows - $110.46 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)
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