Question

A bond has 10 years until maturity, a coupon rate of 8.1%, and sells for $1,190. interest is paid annually. (assume a face value of $1,000.) if the bond has a yield to maturity of 9.9% 1 year from now, what will its price be at that time? note: do not round intermediate calculations. round your answer to nearest whole number. what will be the rate of return on the bond? note: do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places. negative amount should be indicated by a minus sign. if the inflation rate during the year is 3%, what is the real rate of return on the bond?

Answer 1

The price of the bond one year from now will be $1,080 and the rate of return on the bond is approximately -9.24%. The real rate of return on the bond, taking into account the inflation rate of 3%, is approximately -12.24%.

Step-by-step explanation:

The price of the bond one year from now can be calculated by considering the expected payments from the bond. The bond will pay the face value of $1,000 plus the interest payment of $80. Therefore, the price of the bond will be $1,080.

To calculate the rate of return on the bond, we need to compare the price of the bond one year from now ($1,080) with the price of the bond now ($1,190). The rate of return can be calculated by using the formula: Rate of return = (Price one year from now - Price now) / Price now * 100. Plugging in the values, the rate of return on the bond is approximately -9.24%.

The real rate of return on the bond, taking into account the inflation rate of 3%, can be calculated by subtracting the inflation rate from the rate of return. In this case, the real rate of return on the bond is approximately -12.24%.