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mylen [45]
3 years ago
9

Last year Janet purchased a $1,000 face value corporate bond with an 10% annual coupon rate and a 20-year maturity. At the time

of the purchase, it had an expected yield to maturity of 13.84%. If Janet sold the bond today for $994.79, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.
Business
1 answer:
Firdavs [7]3 years ago
7 0

Answer:

33.8%

Explanation:

Purchase price of the bond will be computed using the formula below.

p=\frac{A(1-(1+r)^{-n} }{r} + \frac{F}{(1+r)^{n} }

where A = annual coupon = 10% * 1000 = 100

r = yield to maturity = 0.1384

n = time to maturity = 20 years

F = face value = $1,000

p = price of the bond.

p=\frac{100(1-1.1384^{-20} }{0.1384} + \frac{1,000}{(1.1384)^{20} }\\p = 668.4721 + 74.8346\\p = 743.31

Therefore, if Janet sold the bond a year later for $994.79,

the profit on sale = \frac{994.79}{743.31} -1=0.3383

= 33.8% profit (rate of return).

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Answer:

Grew by 2%

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Question says we must find real GDP per person for the 4 year term that the president has served for so we will use the formula to calculate GDP Deflator to actually solve for Real GDP as we know the formula is GDP Deflator= (nominal GDP per person%)/(Real GDP per person%)x100

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