Having a little trouble figuring out where the 1,000.84 comes from in the 10% yield column from the question below, I'm good with the interest and yield sections. I know its probably the present value of the coupon payments for years 7-10 (see attachment) or possibly the discounted future value? The latter actually comes closer to me in terms of getting the 1,000.84, but logically I feel like it should be the present value of the coupons from years 7-10... Any thoughts on where I'm going wrong? Thanks and much appreciated
Problem:
Assume receipt of 75.9% of the coupon in last year, since the bond will be held for 75.9% of that year.
Assume reinvestment of coupon at 10% for first three years , then reinvestment at the prevailing market yield after
12% indicates 10% for the first three years and 12% after that.
10% indicates 10% for the entire time period.
8% indicates 10% for the first three years and 8% after that.
Beginning of holding period: January 1st
YTM = 10% on January 1st; There is a flat yield curve.
End of holding period is October 4, after 6.759 years.
Length of holding period is 6.759 years.
Duration = 6.759 years
Strategy Three: Buy a 10% Bond with a 10 year maturity as of January 1st
Sell the bond on October 4th after 6.759 years.
Market Yields Bond value on Interest on Coupons Yield
and Beyond October 4th
12% ? ? ?
10% 1000.84 229.44 10.01
8% ? ? ?
Problem:
Assume receipt of 75.9% of the coupon in last year, since the bond will be held for 75.9% of that year.
Assume reinvestment of coupon at 10% for first three years , then reinvestment at the prevailing market yield after
12% indicates 10% for the first three years and 12% after that.
10% indicates 10% for the entire time period.
8% indicates 10% for the first three years and 8% after that.
Beginning of holding period: January 1st
YTM = 10% on January 1st; There is a flat yield curve.
End of holding period is October 4, after 6.759 years.
Length of holding period is 6.759 years.
Duration = 6.759 years
Strategy Three: Buy a 10% Bond with a 10 year maturity as of January 1st
Sell the bond on October 4th after 6.759 years.
Market Yields Bond value on Interest on Coupons Yield
and Beyond October 4th
12% ? ? ?
10% 1000.84 229.44 10.01
8% ? ? ?