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# Money and Banking (Math Problem Sample)

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In year 0 you bought a 3 year 20% coupon bond with face value 1000 at price 1000. What is the bond’s YTM? In year 1, with 2 years remaining until maturity, you sell the bond. The current interest rate is now 10% and it is expected to remain at that level forever, i.e. newly issued 2 year bonds have a coupon rate of 10%. At what price can you sell your bond and what is the holding period yield (you hold it between year 0 and year 1). How does the holding return compare with your bond’s YTM ?

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Money and banking

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In year 0 you bought a 3 year 20% coupon bond with face value 1000 at price 1000. What is the bond’s YTM? In year 1, with 2 years remaining until maturity, you sell the bond. The current interest rate is now 10% and it is expected to remain at that level forever, i.e. newly issued 2 year bonds have a coupon rate of 10%. At what price can you sell your bond and what is the holding period yield (you hold it between year 0 and year 1). How does the holding return compare with your bond’s YTM ?-

[A] Current price/ market value- 1,000

Face value/ Par value- 1,000

Annual rate/ coup...

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