Question

A coupon bond of 8.2 percent with 15 years left to maturity is priced to offer a 6.60 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.3 percent. What would be the total return of the bond in dollars?

Answer 1

To calculate the total return of the bond in dollars, use the new yield to calculate the new bond price, then calculate the difference between the new bond price and the current bond price.

To calculate the total return of the bond in dollars, we need to consider the interest payments and any capital gains.

In one year, the yield to maturity is expected to be 7.3%. This means the bond price will decrease. Let's calculate the new bond price using the new yield.

1. Calculate the new annual coupon payment: ($1,000 bond face value) x (0.082 coupon rate) = $82
2. Calculate the new bond price: $82 / (0.073 yield) = $1,123.29
3. Calculate the total return: ($1,123.29 new bond price) - ($964 current bond price) = $159.29

The total return of the bond in dollars would be $159.29.