S
Snn
Member
Can anyone help me-
6 A fixed-interest bond pays annual coupons of 5% per annum in arrear on 1 March
each year and is redeemed at par on 1 March 2025.
On 1 March 2007, immediately after the payment of the coupon then due, the gross
redemption yield was 3.158% per annum effective.
(i) Calculate the price of the bond per £100 nominal on 1 March 2007.
On 1 March 2012, immediately after the payment of the coupon then due, the gross
redemption yield on the bond was 5% per annum.
(ii) State the new price of the bond per £100 nominal on 1 March 2012. [1]
A tax-free investor purchased the bond on 1 March 2007, immediately after payment
of the coupon then due, and sold the bond on 1 March 2012, immediately after
payment of the coupon then due.
(iii) Calculate the gross annual rate of return achieved by the investor over this
period.
(iv) Explain, without doing any further calculations, how your answer to part (iii)
would change if the bond were due to be redeemed on 1 March 2035 (rather
than 1 March 2025). You may assume that the gross redemption yield at both
the date of purchase and the date of sale remains the same as in parts (i) and
(ii) above.
I have doubt in (iv)
6 A fixed-interest bond pays annual coupons of 5% per annum in arrear on 1 March
each year and is redeemed at par on 1 March 2025.
On 1 March 2007, immediately after the payment of the coupon then due, the gross
redemption yield was 3.158% per annum effective.
(i) Calculate the price of the bond per £100 nominal on 1 March 2007.
On 1 March 2012, immediately after the payment of the coupon then due, the gross
redemption yield on the bond was 5% per annum.
(ii) State the new price of the bond per £100 nominal on 1 March 2012. [1]
A tax-free investor purchased the bond on 1 March 2007, immediately after payment
of the coupon then due, and sold the bond on 1 March 2012, immediately after
payment of the coupon then due.
(iii) Calculate the gross annual rate of return achieved by the investor over this
period.
(iv) Explain, without doing any further calculations, how your answer to part (iii)
would change if the bond were due to be redeemed on 1 March 2035 (rather
than 1 March 2025). You may assume that the gross redemption yield at both
the date of purchase and the date of sale remains the same as in parts (i) and
(ii) above.
I have doubt in (iv)
