|Author||Topic: realized yield question|
|bond pays 8% coupon, matures in 15 years and has a price of 825. if you expect to sell in 5 years at 940 what is your
answer is C. i'd appreciate any help on this one. -thanks
|applebee, who told you payments are semiannually?|
|I thought it would be 11.17%.
What do you think? Anyone can help????
|Ok, let us try again. Seems to me it all depends on the timing.
Assumes you wait until the end of year 5 and received all the coupon payment and then sell the bond for 940.
The cash flow is :
year 0 1 2 3 4 5
-825 80 80 80 80 1020
calculate the yield of this cash flow, it will be 11.89%
If you sell the bond before the end of year, say, before you got the last coupon payment of 40.
Then the cash flow is
In this case, the yield is 11.17%
Just my 2 cents, let me know if you see it differently.
|That's elementary: any calculator TVM function:
Pls send me 2 cents, -:)