An investor purchased a 10.000, 5 year corporate note one year ago for 10.440. The note pays an annual coupon of $600. Over the past year, the note’s annual YTM has dropped by 1%. What total return did the investor earn over the year? Any clue??
But I might be totally off on this: N=10, PV=-10.440, PMT=300, FV=10.000, CPT I/Y=2.4973%, that’s YTM periodic, that decreased 0.5% per period (or 1% per year). N=8, I/Y=2.4973%-0.5%=1.9973%, PMT=300, FV=10.000 CTP PV=10,734.588 10,734.588-10.440+600=894.588, that’s a 8.57%.
Sure I was off, the coupon is annual. I might still be. N=5, PV=-10.440, PMT=600, FV=10.000, CPT I/Y=4.98%, that’s YTM periodic N=4, I/Y=3.98%, PMT=600, FV=10.000 CTP PV=10,733.58 10,733.58-10.440+600=893.58, that’s a 8.56%.
Thank you on this one, the answer actually is 8.5 so I think you are doing right. In the last part (10,733.58-10.440+600=893.58, that’s a 8.56%.), why do you add 600)?
Because that’s your gain too, that’s the coupon that you receive from the issuer of the debt.
you are right, I was missing out the question. Thank you!