two-year maturity bond
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A two-year maturity bond with a face value of $1,000 makes annual coupon payments of $80 and is selling at face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is (a) 6%,
(b) 8%, (c) 10%.
Solution
Problem 4-22
Instructions
Use the assumptions below and the bond values to calculate the rate of return.
Bond face value $1,000
Annual coupon payment $80
A two-year maturity bond with a face value of $1,000 makes annual coupon payments of $80 and is selling at
face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is (a) 6%,
(b) 8%, (c) 10%.
Rate of
Yield to Maturity Value Return
6% $1,018.87 FORMULA
8% $1,000.00 FORMULA
10% $981.82 FORMULA
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Solution Summary
The solution calculates the rate of return on a bond if the yield to maturity ends at the year.
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