Go to Table 10-1 which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 11 percent to 8 percent:
A. What is the bond price at 11%?
B. What is the bond price at 8%?
C. What would be your percentage return on investment if you bought when rates were 11% and sold when rates were 8%?
Table 10-1 Bond price table
(10% Interest Payment, 20Yrs to Maturity)
Yield to Maturity Bond Price
2% $2,308.10
4 1,815.00
6 1,459.00
7 1,317.40
8 1,196.80
9 1,090.90
10 1,000.00
11 920.30
12 850.90
13 789.50
14 735.30
16 643.90
20 513.00
25% $ 407.40
what is the bond at 11 percent
A. To find the bond price at 11%, we need to look at the Yield to Maturity column in Table 10-1. We find the yield closest to 11%, which is 10%. The bond price at 11% is $1,000.00.
B. To find the bond price at 8%, we need to look at the Yield to Maturity column in Table 10-1. We find the yield closest to 8%, which is 9%. The bond price at 8% is $1,090.90.
C. To calculate the percentage return on investment, we need to calculate the price appreciation of the bond and divide it by the initial purchase price.
Price appreciation = Bond Price at 8% - Bond Price at 11% = $1,090.90 - $1,000.00 = $90.90
Percentage return on investment = (Price appreciation / Bond Price at 11%) * 100
= ($90.90 / $1,000.00) * 100
= 9.09%
Therefore, if you bought the bond when rates were 11% and sold when rates were 8%, your percentage return on investment would be 9.09%.
A. Based on Table 10-1, the bond price at 11% yield to maturity is $920.30.
B. Based on Table 10-1, the bond price at 8% yield to maturity is $1,196.80.
C. To calculate the percentage return on investment, we need to compare the initial bond price at 11% yield ($920.30) with the final bond price at 8% yield ($1,196.80).
Return on investment = (Final bond price - Initial bond price) / Initial bond price * 100
Return on investment = ($1,196.80 - $920.30) / $920.30 * 100
Return on investment = $276.50 / $920.30 * 100
Return on investment = 0.3 * 100
Return on investment = 30%
Therefore, the percentage return on investment would be 30% if you bought the bond when rates were 11% and sold it when rates were 8%.