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    Worth of Bond

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    Three years ago (Apr '07) you invested in a mortgage backed bond originally issued in Apr 2000. When it was issued (in 2000), it was sold as a 20-year bond at par with an 8% coupon, and semiannual payments.

    a) In Apr. 07 (when you bought it), the yield to maturity on this bond was 6%. What was its value at that time ('07)?

    b) Unsurprisingly, the yield on this bond skyrocketed to 20% over the next three years, reflecting its current junk bond status. What is it worth now?

    c) What was your average annual capital gains yield over the past three years on this bond ('07-'10)? Note: just find the capital gains yield, not the "total" yield.

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    Solution Summary

    The solution determines the value of the bond.