promised there, we now return to this subject and discuss bond prices and yields in some detail. 6 years ago. The bond's rate of return is roughly 7%. B) C) there is no capital gain or loss from holding the bond until maturity. Round your answer to the nearest whole percent and assume annual coupon payments. The rate of return on a bond is a better reword measure than the yield to maturity". Investors must also consider the fund’s total return, which is the combination of yield and the return provided by principal fluctuation. Annual interest payment. C. (Total reserves - required reserves) ×the money multiplier. B) equivalent to the current yield for non par bonds. If you held that bond until maturity, then the rate of return would be: a) -20% b) 20% c) -25% d) 25%. B. 1.The coupon rate is the fixed amount paid annually to the bondholder who purchased at issue. The strength of that guarantee is what makes them safer than any other type of bond. Figuring Bond Return. Question: The Rate Of Return On A Bond Is A Better Reword Measure Than The Yield To Maturity". Expert Answer . Treasury bonds are issued in terms of 20 years and 30 years and are offered in multiples of $100. If a zero-coupon bond is trading at $950 and has a par value of $1,000 (paid at maturity in one year), the bond's rate of return at the present time is 5.26%: 1,000 - 950 ÷ 950 x 100 = 5.26. The current yield is the rate of return on a bond. It's expressed in a percentage format. This inverse relationship can seem a little confusing at first glance, but a real-life example can provide a better sense. 2. C. Coupon rate. 80.408. Answer Save. A bond's yield can be expressed as the effective rate of return based on the actual market value of the bond. In which of the following situations would you prefer to be the lender? What is the expected rate of return on a bond that pays a coupon rate of 9%, has a par value of $1000, matures in five years, and is currently selling for $714? The required rate of return on a bond is A. the interest rate that equates the current market price of the bond with the present value of all future cash flows received. The price may be greater than, less than, or equal to the bond's par amount (or face value). 35% off Provide Details: Oct 2020 Quizlet Promotion Codes + Promos - 35% OFF. The rate of return on a bond is the A. Rate of Return (RoR) on Stocks and Bonds . U.S. Treasury bonds, for example, have the full faith and backing of the federal government. Favourite answer. What is the total rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931? Performance is usually quantified by a fund's total return. 19. The expected return on the Fictional Fashion bond is: (1000-900)/900 = 100/900 = 0.1111 = 11.11 percent. 11) What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate of 14%, and is currently selling for $911? B. Show transcribed image text. We first describe how bond yields are determined and how they are interpreted. A bond's yield is more accurately thought of as the effective rate of return based on the actual market value of the bond. How do I bonds earn interest? The interest accrues (is added to the bond) until the bond reaches 30 years or you cash the bond, whichever comes first. The price and interest rate of a bond are determined at auction. Do You Agree Explain Why Or Why Not? E. yield to maturity. Dirty yield. The required rate of return on a bond is A) the interest rate that equates the current market price of the bond with the present value of all future cash flows received. If you spend the $30 you collect twice a year, you get $1,000 back for your bond at the end of 30 years, and your total annual rate of return (ignoring taxes and inflation) is 6 percent simple interest. Discount rate. DISCOUNT (2 months. If you've held a bond over a long period of time, you might want to calculate its annual percent return, or the percent return divided by the number of years you've held the investment. 1) _____ A) 4% B) C) D) 2% 6% 19% 2) If the current price of a bond is equal to its face value, 2) _____ A) the coupon rate must be greater than the yield to maturity. The composite rate for I bonds issued from November 2020 through April 2021 is 1.68 percent. face value. maturity. If you know your bond's coupon rate, its value during the year and the annual inflation rate, you can calculate both the nominal rate of return and the real rate of return you earned on a bond. The rate of return calculations for stocks and bonds is slightly different. coupon. Call premium. If the prevailing yield environment declines, prices on those bonds generally rise. C. less than the Err for discount bonds and greater than the Err for premium bonds. What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931? Government-issued bonds are considered to have the lowest risk and therefore the lowest required rate of return. It is determined by the beginning and ending price and the cash flows during the holding period. Price and Interest . The required return on similar-risk bonds is 20%. Required reserve ratio ×total deposits. CODES (1 months ago) a discount on bonds payable quizlet - Updated Daily 2020. Total reserves - required reserves. $38 $931 $950 0.0400 0.0200 0.0200 2.0% $950 $950 c i g 5. Illustration 3: Let us now take an example of the advantages of zero interest bonds, namely, debentures. 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