Respuesta :
Answer:
Return = 29.64%
Explanation:
As per the data given in the question,
Time = 20 years
Interest = $90
Face value = $1,000
Rate = 10%
Current price of the bond = interest [1 - (1-rate)^(-time)] ÷ rate + Face value × (1+r)^(-time)
= 90 [1 - (1-0.10)^(-20)] ÷ 0.10 + $1,000 × (1+0.10)^(-20)
= 90 × 8.5136 + $1,000 × 0.14864
= $914.864
Price of the bond after 1 year = 90[1-(1-0.08)^(-19)] ÷ 0.08 + $1,000 × (1+0.08)^(-19)
= 90 × 9.6036 + $1,000 × 0.23171
= $1,096.04
Return = Ending price + Coupon - Beginning price ) ÷ Beginning price
= ($1,096.04 + 90 - $914.864) ÷ $914.864
= 0.2964
= 29.64 %
The Return = 29.64%
- The calculation is as follows:
Current price of the bond = interest [1 - (1-rate)^(-time)] ÷ rate + Face value × (1+r)^(-time)
= 90 [1 - (1-0.10)^(-20)] ÷ 0.10 + $1,000 × (1+0.10)^(-20)
= 90 × 8.5136 + $1,000 × 0.14864
= $914.864
Now
Price of the bond after 1 year = 90[1-(1-0.08)^(-19)] ÷ 0.08 + $1,000 × (1+0.08)^(-19)
= 90 × 9.6036 + $1,000 × 0.23171
= $1,096.04
So,
Return = Ending price + Coupon - Beginning price ) ÷ Beginning price
= ($1,096.04 + 90 - $914.864) ÷ $914.864
= 0.2964
= 29.64 %
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