You purchased a zerocoupon bond one year ago for 28283 The m

You purchased a zero-coupon bond one year ago for $282.83. The market interest rate is now 7 percent. Assume semiannual coumpounding periods.

If the bond had 19 years to maturity when you originally purchased it, what was your total return for the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Total return for the past year             %

Solution

Bond value one year later i.e. Bond Value today (after 1 years means, 18 years to mature):

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / 2 =

3.50

PMT = Payment = Coupon =

$0.00

N = Total number of remaining periods = 18 Years remaining x 2 =

36

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$289.83

.

Current Bond Value = $289.83

.

Total return for past year = (Current Bond Value - Purchase Price)/Purchase Price

Total return for past year = (289.83 - 282.83)/282.83

Total return for past year = 2.47%