Fixed Income【Reading 58】Sample 2012

prashantsahni

A 6-year annual interest coupon bond was purchased one year ago. The coupon rate is 10% and par value is $1,000. At the time the bond was bought, the yield to maturity (YTM) was 8%. If the bond is sold after receiving the first interest payment and the bond's yield to maturity had changed to 7%, the annual total rate of return on holding the bond for that year would have been:

A) 11.95%.

B) 7.00%.

C) 8.00%.

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Price 1 year ago N = 6, PMT = 100, FV = 1,000, I = 8, Compute PV = 1,092 Price now N = 5, PMT = 100, FV = 1,000, I = 7, Compute PV = 1,123
% Return = (1,123.00 + 100 − 1,092.46)/1,092.46 x 100 = 11.95%

prashantsahni

An investor purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000. What would her rate of return be at the end of the year if she sells the bond? Assume the yield to maturity on the bond is 9% at the time it is sold and annual compounding periods are used.

A) 19.42%.

B) 16.00%.

C) 15.00%.

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Purchase price: I = 10; N = 10; PMT = 0; FV = 1,000; CPT → PV = 385.54
Selling price: I = 9; N = 9; PMT = 0; FV = 1,000; CPT → PV = 460.43
% Return = (460.43 − 385.54) / 385.54 × 100 = 19.42%