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Buying 10-Year Bonds

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Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $1,003.82. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,077.02, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

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YTM of a Bond
Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $1,003.82. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,077.02, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal ...

Solution Summary

This post shows how to calculate the yield on a bond investment

$2.19
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Forward Contracts

You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000, and the 1 year and 11 year spot interest rates are 4 percent per annum a 9 percent per annum, respectively. Both of these interest rates are expressed as effective annual yeilds (EAYs).

What is the forward price of your contract?

Suppose both the spot rates unexpectedly shift downward by 1 percent.
What is the price of a forward contract otherwise identical to yours?

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