A bond has 10 years until maturity, a coupon rate of 8.6%, and sells for $1,140. Interest is paid annually. (Assume a face value of $1,000.) a. If the bond has a yield to maturity of 9.4% 1 year from now, what will its price be at that time? Note: Do not round intermediate calculations. Round your answer to nearest whole number. Price b. What will be the rate of return on the bond? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign. Rate of return % C. If the inflation rate during the year is 3%. what is the real rate of return on the bond?
A bond has 10 years until maturity, a coupon rate of 8.6%, and sells for $1,140. Interest is paid annually. (Assume a face value of $1,000.) a. If the bond has a yield to maturity of 9.4% 1 year from now, what will its price be at that time? Note: Do not round intermediate calculations. Round your answer to nearest whole number. Price b. What will be the rate of return on the bond? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign. Rate of return % C. If the inflation rate during the year is 3%. what is the real rate of return on the bond?
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 20PROB
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Transcribed Image Text:Problem 6-16 Bond Returns (LO2, 3)
A bond has 10 years until maturity, a coupon rate of 8.6%, and sells for $1,140. Interest is paid annually. (Assume a face value
of $1,000.)
a. If the bond has a yield to maturity of 9.4% 1 year from now, what will its price be at that time?
Note: Do not round intermediate calculations. Round your answer to nearest whole number.
Price
b. What will be the rate of return on the bond?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
Negative amount should be indicated by a minus sign.
Rate of return
%
c. If the inflation rate during the year is 3%, what is the real rate of return on the bond?
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