Answer:
The bonds will be sold at $971.09
while the return on vestment after a year will be of: -0,00891
Explanation:
The bonds will be sold at the discounted price of the future cash flow.
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 10.000 (1,000 x 2% / 2 payment per year)
time 2 (after a year 1 year is left and 2 payment per year)
rate 0.025 market rate is 5% annual
[tex]10 \times \frac{1-(1+0.025)^{-2} }{0.025} = PV\\[/tex]
PV $19.2742
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 2.00
rate 0.025
[tex]\frac{1000}{(1 + 0.025)^{2} } = PV[/tex]
PV 951.81
PV c $19.2742
PV m $951.8144
Total $971.0886
Return on investment:
coupon payment + sale proceeds over purchase price
(971.09 + 20)/1000 - 1 = -0,00891 = -0.891%
