You buy a 20-year bond with a coupon rate of 9% that has a yield to maturity of 10%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 11%. What is your return over the 6 months?

You buy a 20-year bond with a coupon rate of 9% that has a yield to maturity of 10%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 11%. What is your return over the 6 months?

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

PV0 = $40× [100.050− 100.050(1.050)40]+ $1,0001.05040=$914.20
PV1=$40×[100.06−13900.06(1.05)]+$1,00039(1.05)= $840.71

Rate of return =	$40 + ($840.71 - $914.20)	= –914.2000 = –3.12%
	$914.20