Explore BrainMass
Share

# Bond Price, Rate of Return, Yield to Maturity

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

7. Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half year. The bond has three year until maturity.
(a) Find the bond's price today and six months from now after the next coupon is paid.
(b) What is the total (six month) rate of return on the bond?

8. Assume you have one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays \$1000 at maturity. The second has an 8% coupon rate and pays the \$80 coupon once per year. The third has a 10% coupon rate and pays the \$100 coupon once per year.
(a) If all three bonds are now priced to yield 8% to maturity. What are their prices?
(b) If you expect their yield to maturity to be 8% at the beginning of next year, what will their prices be then? What is your before-tax holding period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your after-tax rate of return be on each?
(c) Recalculate your answer to (b) under the assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year.

#### Solution Summary

The expert finds the bond's price today and six months from now after the next coupon paid. The price to yield maturity is examined.

\$2.19
Similar Posting

## Valuing Bonds-Bond Yields ( current yield, yield to maturity), Bond returns, Price of bonds,

How do I calculate Bond Yields: An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for \$1,000?

a.What is the current yield on the bond?
b.What is the yield to maturity?

And in BOND RETURNS how do I calculate the following:

a. If the AT&T bond in the above problem has a yield to maturity of 8 percent 1 year from now, what will its price be?

b. What will be the rate of return on the bond?

c. If the inflation rate during the year is 3 percent, what is the real rate of return on the bond?

And in BOND PRICING how do I compute the following:
A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 7 percent

a. What interest payments do bondholders receive each year?
b. At what price does the bond sell? (Assume annual interest payments)
c. What will happen to the bond price if the yield to maturity falls to 6 percent?

Can you help me with the definitions on the terms like Yield to maturity and abbreviation?

View Full Posting Details