Getting lost on an exercise hope you can help, thanks.

A 1000 par value bond purchased two years ago at 890 now trades at 925. Coupons of 100 received at the end of each of the two preceding two years, last coupon received today. Intend to hold bond another four years while expecting annual coupons of 100 and market price 960 by end of the term. The required return is 11.25%.

1 What’s been your realized rate since date of purchase?

2 Is bond currently trading at fair market value?

3 Expected rate of return over the next four year period?

closed as off-topic by Rupert Morrish, Bob Baerker, Nathan L, Dheer, Pete B. Nov 28 '18 at 11:47

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  • Welcome to Money.SE. You'll have to be more specific about where you're stuck. How to calculate realized return? what fair market value for a bond is? – D Stanley Nov 19 '18 at 16:51

This bond appears to be a 10% coupon bond, if you are receiving $100 per year on a $1000 bond. You can't know what the market price, 960, will be 4 years in the future. Finally, bonds don't have a "Required Return". Bonds normally pay at 100% at maturity, although you didn't say if 4 years would be the maturity date. You purchased the bonds at 890, so you would experience a yield greater than the 10% coupon if held to maturity. That would be your "Purchase Yield to Maturity", which might be 11.25% if you hold them to maturity.

  • 1
    It’s a finance hw question. They use RR for discount rate. – NuWin Nov 19 '18 at 23:38

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