document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1181665>Question 1181665</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Determine the return for the buyer of a 7-year, 3% bond of PhP 500,000 face value if on the date it is issued it is purchased from its original owner for PhP 450,000. </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #849982 by </B><A HREF=/tutors/aboutme.mpl?userid=CPhill><B>CPhill(1959)</B></A><img src=\"/images/stars/stars-12.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=CPhill><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=CPhill><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=849982\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> Here's how to calculate the return for the buyer of the bond:\r<BR>\n" );
document.write( "\n" );
document.write( "1. **Calculate the Annual Interest Payment:**\r<BR>\n" );
document.write( "\n" );
document.write( "*   Annual interest = Face value * Coupon rate<BR>\n" );
document.write( "*   Annual interest = PhP 500,000 * 0.03 = PhP 15,000\r<BR>\n" );
document.write( "\n" );
document.write( "2. **Calculate the Total Interest Received Over the Bond's Life:**\r<BR>\n" );
document.write( "\n" );
document.write( "*   Total interest = Annual interest * Number of years<BR>\n" );
document.write( "*   Total interest = PhP 15,000 * 7 = PhP 105,000\r<BR>\n" );
document.write( "\n" );
document.write( "3. **Calculate the Capital Gain:**\r<BR>\n" );
document.write( "\n" );
document.write( "*   Capital gain = Face value - Purchase price<BR>\n" );
document.write( "*   Capital gain = PhP 500,000 - PhP 450,000 = PhP 50,000\r<BR>\n" );
document.write( "\n" );
document.write( "4. **Calculate the Total Return:**\r<BR>\n" );
document.write( "\n" );
document.write( "*   Total return = Total interest + Capital gain<BR>\n" );
document.write( "*   Total return = PhP 105,000 + PhP 50,000 = PhP 155,000\r<BR>\n" );
document.write( "\n" );
document.write( "5. **Express the Return as a Percentage (Total Return):**\r<BR>\n" );
document.write( "\n" );
document.write( "*   Total Return Percentage = (Total Return / Purchase Price) * 100<BR>\n" );
document.write( "*   Total Return Percentage = (155,000 / 450,000) * 100 ≈ 34.44%\r<BR>\n" );
document.write( "\n" );
document.write( "6. **Annualized Return (Yield to Maturity - Approximate):**\r<BR>\n" );
document.write( "\n" );
document.write( "A precise Yield to Maturity (YTM) calculation is complex and usually requires a financial calculator or software.  However, we can get an *approximation* of the annualized return by dividing the total return percentage by the number of years:\r<BR>\n" );
document.write( "\n" );
document.write( "*   Approximate Annualized Return = Total Return Percentage / Number of Years<BR>\n" );
document.write( "*   Approximate Annualized Return = 34.44% / 7 ≈ 4.92%\r<BR>\n" );
document.write( "\n" );
document.write( "**Summary:**\r<BR>\n" );
document.write( "\n" );
document.write( "*   **Total Return:** PhP 155,000<BR>\n" );
document.write( "*   **Total Return Percentage:** Approximately 34.44%<BR>\n" );
document.write( "*   **Approximate Annualized Return (YTM):** Approximately 4.92%\r<BR>\n" );
document.write( "\n" );
document.write( "**Important Note:** The 4.92% is an *approximation* of the YTM.  The actual YTM might be slightly different.  For precise YTM calculation, you should use a financial calculator or spreadsheet software.<BR>\n" );
document.write( " </SPAN>\n" );
document.write( "</TD></TR></TABLE>\n" );