1. You are considering the purchase of a 7%, 15-year bond that pays interest annually. If the yield to maturity on the bond is 6%, what price will you pay? Round your answer to the nearest cent.
2. What is the current yield on the bond from part a? Round your answer to the nearest tenth of a % (e.g., 12.2%).
3. Assume that you purchased the bond at the price determined in part a. It is now 2 years later and the bond is selling for $1120. What is the bond's yield to maturity at this point in time? Round your answer to the nearest tenth of a percent.
4. Now assume that you purchased the bond at the price determined in part a and now sell the bond for $1120. Assume you receive the second year's interest payment on the sale date. What is your rate of return on this investment? You must use a financial calculator to compute this return and round your answer to the nearest tenth of a percent.
The expert examines bond prices, current yields, YTM and ROI.