Ask Question
24 December, 07:40

5. An investor is interested in purchasing a 30-year U. S. government bond carrying an 8 percent coupon rate. The bond's current market price is $935 for a $1000 par value instrument. Suppose the investor sells the bond at the end of 13 years for $970. What is the holding-period yield? What is the effective yield?

+2
Answers (1)
  1. 24 December, 07:47
    0
    Holding period yield is 114.97%

    effective yield is 8.72%

    Explanation:

    holding period yield = (Price at call-initial price+coupon payments) / initial price

    = ($970-$935) + (13*$80) / $935

    = ($35+$1040) / $935

    =$1075/$935

    =114.97%

    The effective yield is the yield to call which can be computed using the excel rate formula:

    =rate (nper, pmt,-pv, fv)

    nper is the number of payments before the call which is 13

    pmt is the periodic payment by bond which is $1000*8%=$80

    pv is the current market price of $935

    fv is the bond price at end of 13 years at $970

    =rate (13,80,-935,970)

    rate=8.72%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “5. An investor is interested in purchasing a 30-year U. S. government bond carrying an 8 percent coupon rate. The bond's current market ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers