You want to buy a Disney bond with two years until maturity and a coupon rate of 9.50% per year, paid semiannually. FED reports that the market interest rate for similar bonds is only 3.8% per half-year. Find the bond's price today and 6 months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.) - Current price $-Price after 6 months $ - What is the total rate of return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total rate of return % per six months

Question

Emmy Cain

Business

17 October, 17:32

You want to buy a Disney bond with two years until maturity and a coupon rate of 9.50% per year, paid semiannually. FED reports that the market interest rate for similar bonds is only 3.8% per half-year. Find the bond's price today and 6 months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.) - Current price $-Price after 6 months $ - What is the total rate of return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total rate of return % per six months

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Answers (1)

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Harmon · Answer 1

n=2*2=4

Coupon = 0.095*1000/2=47.50

rate = 0.038

Using excel:

=PV (0.038,4,47.5,1000)

=$1,034.65

Price after 6 months:

n=3

Coupon = 0.095*1000/2=47.50

rate = 0.038

=PV (0.038,3,47.5,1000)

=$1,026.46

Capital gain return:=1026.46/1034.65=-0.791%

Coupon return = 47.5/1034.65

=+4.591%

Total return = 3.80%