A 2-year maturity bond with face value of $1,000 makes annual coupon payments of $86 and is selling at face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is (Do not round intermediate calculations. Round your answers to 2 decimal places.) Rate of Return a. 6% % b. 8.6% % c. 10.6% %
Added by Ashley F.
Step 1
a. If the YTM is 6%, the price of the bond at the end of the first year would be the present value of the remaining cash flows discounted at the new YTM. The remaining cash flows are the coupon payment of $86 and the face value of $1,000. So, the price would Show more…
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