Question

Two years ago a 10 year 10% annual coupon $1000 face value bond was purchased at a yield of 8%. Right after purchase the interest rates went up to 12%. If this bond is sold today, what is the investor's annual return on this investment? Hint: step 1: find original purchase price of the bond. step 2: find the reinvested value of all received coupons and the sale price of the bond. step 3: compute the annual rate of return from initial investment to final value, over the course of these two years. Enter answer in percents to two decimal places.

Answer 1

=((10%*1000/12%*(1.12^2-1)+10%*1000/12%*(1-1/1.12^8)+1000/1.12^8)/(10%*1000/8%*(1-1/1.08^10)+1000/1.08^10))^(1/2)-1

=-0.95%