Question

Last year Janet purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 20-year maturity. At the time of the purchase, it had an expected yield to maturity of 12.04%. If Janet sold the bond today for $1,065.16, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

P0 = PV of Cash Flows from it.

Year	CF	PVF @12.04%	Disc CF
1	$    110.00	0.8925	$   98.18
2	$    110.00	0.7966	$   87.63
3	$    110.00	0.7110	$   78.21
4	$    110.00	0.6346	$   69.81
5	$    110.00	0.5664	$   62.31
6	$    110.00	0.5055	$   55.61
7	$    110.00	0.4512	$   49.63
8	$    110.00	0.4027	$   44.30
9	$    110.00	0.3595	$   39.54
10	$    110.00	0.3208	$   35.29
11	$    110.00	0.2863	$   31.50
12	$    110.00	0.2556	$   28.11
13	$    110.00	0.2281	$   25.09
14	$    110.00	0.2036	$   22.40
15	$    110.00	0.1817	$   19.99
16	$    110.00	0.1622	$   17.84
17	$    110.00	0.1448	$   15.92
18	$    110.00	0.1292	$   14.21
19	$    110.00	0.1153	$   12.69
20	$    110.00	0.1029	$   11.32
20	$ 1,000.00	0.1029	$ 102.93
P0			$ 922.51

Rate of Ret = [ [ P1 - P0 ] + Coupon Amount ] / P0

= [ [ 1065.16 - 922.51 ] + 110 ] / 922.51

= [ 142.65+110 ] / 922.51

= 252.65 / 922.51

= 0.2739 i.e 27.39%