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serg [7]
3 years ago
10

A bond has a face value of $1,000, a coupon of 4% paid annually, a maturity of 30 years, and a yield to maturity of 7%. What rat

e of return will be earned by an investor who purchases the bond for $627.73 and holds it for 1 year if the bond’s yield to maturity at the end of the year is 8%?
Business
1 answer:
Lelechka [254]3 years ago
4 0

Answer:

-11.8%

Explanation:

the key to answer this question is to remember that valuation of a bond depends basically of calculating the present value of a series of cash flows, so let´s think about a bond as if you were a lender so you will get interest by the money you lend (coupon) and at the end of n years you will get back the money you lend at the beginnin (principal), so applying math we have the bond value given by:

price=\frac{principal*coupon}{(1+i)^{1} }+ \frac{principal*coupon}{(1+i)^{2} } \frac{principal*coupon}{(1+i)^{3} }+...+\frac{principal+principal*coupon}{(1+i)^{n} }

so in this particular case that one year later there are 29 years to maturity so we have:

price=\frac{1,000*0.04}{(1+0.08)^{1} }+ \frac{1,000*0.04}{(1+0.08)^{2} } \frac{1000*0.04}{(1+0.08)^{3} }+...+\frac{1,000+1,000*0.04}{(1+0.08)^{30} }

price=553.6638

so as we have a higher rate the investment has the next return:

return=\frac{553.66}{627.73} -1

return=-11.8\%

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Leno4ka [110]

Answer:

see below

Explanation:

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8 0
3 years ago
External factors in a SWOT analysis include the strengths and weaknesses of an organization.
Katarina [22]

Answer:

False

Explanation:

External factors in a SWOT analysis does not include the strengths and weaknesses of an organization.  The full meaning of SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The Strengths and weaknesses are internal factors to an organization as they have management control over it and can be modify as well.

4 0
3 years ago
While it is generally accepted that intellectual property rights provide a method for increasing the rate of return for inventor
Dmitry_Shevchenko [17]

Answer: a. sufficient incentives for innovation, as well as completely appropriate incentives for innovation

Explanation:

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They also do not believe that patents are completely appropriate because they tend to expire eventually.

7 0
2 years ago
Sunset Corp. currently has an EPS of $2.21, and the benchmark PE for the company is 21. Earnings are expected to grow at 5 perce
storchak [24]

Answer:

$46.41

Explanation:

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The earnings are expected to grow at 5 % per year

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= 2.21 × 21

= $46.41

Hence the estimate of the current stock price is $46.41

8 0
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nadezda [96]

Answer:

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During a job a person can receive an order and being threatened with getting fired or a salary reduction.

6 0
3 years ago
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