Question

Go to Table 10-1 which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 11 percent to 8 percent:

A. What is the bond price at 11%?
B. What is the bond price at 8%?
C. What would be your percentage return on investment if you bought when rates were 11% and sold when rates were 8%?

Table 10-1 Bond price table
(10% Interest Payment, 20Yrs to Maturity)
Yield to Maturity Bond Price
2% $2,308.10
4 1,815.00
6 1,459.00
7 1,317.40
8 1,196.80
9 1,090.90
10 1,000.00
11 920.30
12 850.90
13 789.50
14 735.30
16 643.90
20 513.00
25% $ 407.40