Question

You want to buy a Disney bond with two years until maturity and a coupon rate of 9.50% per year, paid semiannually. FED reports that the market interest rate for similar bonds is only 3.8% per half-year. Find the bond's price today and 6 months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.)-Current price $-Price after 6 months $- What is the total rate of return on the bond?(Do not round intermediate calculations. Round your answer to 2 decimal places.) Total rate of return % per six months

Answer 1

n=2*2=4

Coupon =0.095*1000/2=47.50

rate = 0.038

Using excel:

=PV(0.038,4,47.5,1000)

=$1,034.65

Price after 6 months:

n=3

Coupon =0.095*1000/2=47.50

rate = 0.038

=PV(0.038,3,47.5,1000)

=$1,026.46

Capital gain return:=1026.46/1034.65=-0.791%

Coupon return = 47.5/1034.65

=+4.591%

Total return = 3.80%