13 May WHAT IS THE TOTAL RATE OF RETURN ON THE BOND?
A Focus bond has a coupon rate of 6.00% and makes semiannual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100:07. What is the invoice price of the bond? The coupon period has 182 days. Note: A bond quote with semi-colon “:”, such as XXX:YY, should be read as (XXX+(YY/32))% of par value (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Invoice price $___________
2)
You want to buy a Disney bond with three years until maturity and a coupon rate of 12.50% per year, paid semiannually. FED reports that the market interest rate for similar bonds is only 5.0% per half-year.
a.
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 $_______
b.
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
3)
You buy a(n) eight-year bond that has a 5.50% current yield and a 5.50% coupon (paid annually). In one year, promised yields to maturity have risen to 6.50%. What is your holding-period return? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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