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Suppose you buy a bond with a coupon of 8.2 percent today for $1,100. The bond...

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Finance

Suppose you buy a bond with a coupon of 8.2 percent today for$1,100. The bond has 7 years to maturity. Assume interest paymentsare reinvested at the original YTM.

a. What rate of return do you expect to earn onyour investment? (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimalplaces.)

b. Two years from now, the YTM on your bond hasincreased by 2 percent, and you decide to sell. What price willyour bond sell for? (Do not round intermediatecalculations. Round your answer to 2 decimalplaces.)    

     

Answer & Explanation Solved by verified expert
3.7 Ratings (465 Votes)
aThe rate of return earned on the investment The rate of return expected to earn is the Yield to Maturity of the Bond The Yield to maturity of YTM of the Bond is calculated using financial calculator as follows Normally the YTM is calculated either using EXCEL Functions or by using Financial Calculator Variables Financial    See Answer
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Transcribed Image Text

Suppose you buy a bond with a coupon of 8.2 percent today for$1,100. The bond has 7 years to maturity. Assume interest paymentsare reinvested at the original YTM.a. What rate of return do you expect to earn onyour investment? (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimalplaces.)b. Two years from now, the YTM on your bond hasincreased by 2 percent, and you decide to sell. What price willyour bond sell for? (Do not round intermediatecalculations. Round your answer to 2 decimalplaces.)         

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