I'm trying to help my nephew with finance but I'm not sure if I fully understand if I have all the necessary details to answer this question.
Here's the question:
- Say you want to purchase a 7%, 15yr bond which pays annual interest. Say 6% is the Yield to Maturity. What price will you pay?
- What would be the current yield on the bond from the above calculation
- Say you made the the purchase based on the calculation in Step 1 (from above). What would be the bond's Yield to Maturity at this point of time?
- Say you made the the purchase based on the calculation in Step 1 (from above). Say that you receive the second year's interest payment on the sale date. What would be your rate of return on this investment?
I'm good with basic finance and know a little about bonds. I started reading on Bonds from Investopedia But I'm trying to understand if the questions above are complete. For #1 which asks for "What price will you pay", Don't we need the bond's original price info to calculate the market price?
Are there any pieces of missing information to calculate? If not, how would one go about answering these questions?