Reading 68: Yield Measures, Spot Rates, and Forward Rates black, class, style, return

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41．t rate of return will an investor earn if they buy a 20-year, 10 percent annual coupon bond for $900? They plan on selling this bond at the end of five years for $951.  Calculate the rate of return and the current yield at the end of five years.

       Rate of return    Current yield

A)                     12.0%         10.51%

B)                     9.4%    11.00%

C)                     12.0%         11.00%

D)                     9.4%    10.51%

42．sider the purchase of an existing bond selling for $1,150. This bond has 28 years to maturity, pays a 12 percent annual coupon, and is callable in 8 years for $1,100.

What is the bond's yield to call (YTC)?

A)   9.26%.

B)   10.34%.

C)   10.55%.

D)   10.05%.

43．at is the bond's yield to maturity (YTM)?

A)   9.26%.

B)   10.05%.

C)   10.34%.

D)   10.55%.

44．at rate should be used to estimate the potential return on this bond?

A)   the YTM.

B)   12.00%.

C)   10.34%.

D)   the YTC.

45．a bond sells at a discount its:

A)   coupon rate is greater than its current yield.

B)   coupon rate is less than the market rate of interest.

C)   current yield is greater than its YTM.

D)   YTM will exceed its horizon yield

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答案和详解如下：

41．t rate of return will an investor earn if they buy a 20-year, 10 percent annual coupon bond for $900? They plan on selling this bond at the end of five years for $951.  Calculate the rate of return and the current yield at the end of five years.

       Rate of return    Current yield

A)                     12.0%         10.51%

B)                     9.4%    11.00%

C)                     12.0%         11.00%

D)                     9.4%    10.51%

The correct answer was A)

Realized (horizon) yield = rate of return based on reinvestment rate on selling price at the end of the holding period horizon.

PV = 900; FV = 951; n = 5; PMT = 100; compute i = 12 percent

Current Yield = annual coupon payment / bond price

CY = 100 / $951 = 0.1051 or 10.51 percent

42．sider the purchase of an existing bond selling for $1,150. This bond has 28 years to maturity, pays a 12 percent annual coupon, and is callable in 8 years for $1,100.

What is the bond's yield to call (YTC)?

A)   9.26%.

B)   10.34%.

C)   10.55%.

D)   10.05%.

The correct answer was D)

N = 8, PMT = 120, PV = -1,150, FV = 1,100, CPT I/Y.

43．at is the bond's yield to maturity (YTM)?

A)   9.26%.

B)   10.05%.

C)   10.34%.

D)   10.55%.

The correct answer was C)

N = 28, PMT = 120, PV = -1,150, FV = 1,000, CPT I/Y.

44．at rate should be used to estimate the potential return on this bond?

A)   the YTM.

B)   12.00%.

C)   10.34%.

D)   the YTC.

The correct answer was D)

The yield to call should be used since the bond could be called in the future. Because the bond is callable using yield to maturity would give a falsely increased rate of return.

45．a bond sells at a discount its:

A)   coupon rate is greater than its current yield.

B)   coupon rate is less than the market rate of interest.

C)   current yield is greater than its YTM.

D)   YTM will exceed its horizon yield

The correct answer was B)

When a bond sells at a discount, the market rate goes above the coupon rate and the bond's price falls below par. The current yield is the coupon rate / price, so as price falls below 1000 the current yield rises above the coupon rate. The YTM considers the current yield plus the capital gain associated with the discount.

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