bond question

aammmy33

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Dec 1, 2009
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today, the fixed rate bond is $990. it has 4 years left to maturity, and a coupon rate of 6%. assume that in6 months, the bond equivalent nomial annual rate falls to 5.8%. you then sell the bond at the fair market price just after receving interest (you must compute the price.) what is the price, and what is your 6 month rate or return, including interest?


i missed a week of school and i havent been able to catch up. now, im lost and confused. :( i dont even know how to start.
 
Hmmm...don't think so, WB. I look at it this way (however, problem is badly worded!):

The bond is a $1000 bond with semiannual coupons of $30 (6% annual).
It is worth (can be sold for) $990 today.
In 6 months:
PV of $1000 = 1000 / 1.029^7 = 818.64
PV of 7 payments of $30 = 187.61
Total = 1006.25
Add the $30 coupon received in 6 months, for total of 1036.25

So net revenue = 1036.25 - 990 = 46.25 ; that works out to ~4.67% for the 6 months, or 9.84% annual.

Any comments?
 
I know that bonds/bond funds are best placed in a non-taxable account. However as of right now, the income I make is considered hobbyist income, and I believe this means I cannot contribute it to a Roth IRA. I am currently unemployed, so I have no ability to contribute to a 401k. Though this may change in the future, is there a way for me to gain bond exposure without incurring the tax hit?
 
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