A 6-year maturity bond with face value of $1,000 makes annual coupon payments of $108 and is selling at face value.

A 6-year maturity bond with face value of $1,000 makes annual coupon payments of $108 and is selling at face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)


Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for actual calculations.

With only one year to maturity and annual coupon payments, the price formula can be simplified to:

Bond price = (C + FV) / (1 + r)^t

a.

Price	=	$1,108 / 1.06
	=	$1,045.28

Rate of return	=	[Annual interest + (Ending price – Beginning price)] / Beginning price
	=	($108 + 1,045.28 – 1,000) / $1,000
	=	.1533, or 15.33%

b.

Price	=	$1,108 / 1.11
	=	$1,000

Rate of return	=	[Annual interest + (Ending price – Beginning price)] / Beginning price
	=	($108 + 1,000 – 1,000) / $1,000
	=	0.1080, or 10.80%

c.

Price	=	$1,108 / 1.13
	=	$982.27

Rate of return	=	[Annual interest + (Ending price – Beginning price)] / Beginning price
	=	($108 + 982.27 – 1,000) / $1,000
	=	0.0903, or 9.03%