Question

You hold an annual coupon bond for 1 year, receiving the 0.14 coupon before selling. When bought it had 10 years to maturity, and the YTM was 0.065 . Over the year, interest rates ROSE by 0.005 What i

Answer 1

The yield on a bond is the total return, which includes interest payments and capital gains. When interest rates rise, previously issued bonds with lower rates will sell for less than their face value. Conversely, when interest rates fall, previously issued bonds with higher rates will sell for more than their face value.

Step-by-step explanation:

The yield on a bond is the total return, which includes interest payments and capital gains. To calculate the yield, you can use the formula: ($1080 - $964)/$964 = 12%. This means that the investor received a 12% return on their investment.

When interest rates rise, previously issued bonds with lower rates will sell for less than their face value. On the other hand, when interest rates fall, previously issued bonds with higher rates will sell for more than their face value.