In this workout, we're told that given the yield curve below, that's these numbers here.

Assume you bought a five-year bond at par value of 101 year later the yield curve is unchanged.

We are asked to calculate the total profits at the end of the first year, assuming that the first coupon of the bond has just been paid.

Well, that's great news.

Our first cash flow, our first profit can already go into our answer.

Down at the bottom here. Our coupon makes up one of our returns, and all I've done is link that up to this coupon of 2.5%.

Great. If I carry on reading the question, it says, assume an annual coupon using the actual, actual convention.

This means the actual number of days over the actual number of days rather than 3, 6, 5 or 360, et cetera.

So what do we know? Well, we know the bond is going to be for five years, but where one year into it, so there's four years left, we've got the coupon, we buy it for 100, and the par value, the end will be 100.

Now we need to work out a second return, and it's the capital return.

We have bought it for a hundred, but has the price changed? If the price has gone up during that first year, then we'll have a capital return and that will make up a second part to our total profit.

If it's gone down, then the capital return will be negative.

So we need to calculate the price and we'll use the price function in just a moment.

To do that, some inputs we're going to need, we're going to need the settlement date. That's today and the maturity date of the bond.

That's in four years time.

Remember, it's a five year bond, but we're one year into it.

The coupon was the 2.5%, and now we need the yield of a four year bond.

'cause remember we're one year into a five year bond.

That yield is given in the yield curve.

Up here, it's 2.46%.

So I can now use the price function to help me work out the price of this bond.

Today it asks me for the settlement date.

That's today, the maturity date, that's four years later.

The coupon rate, 2.5%, and I'm just reading these items out of this white syntax up here.

It then asks me for the yield that I desire, that's 2.46.

It then asks me for redemption. Redemption will be at value of a hundred.

And then it asks me what's the frequency of any payments.

So those coupons are annual, so I'm gonna type a one for annual.

And then it asks me what Convention are we using for our coupon? We're using actual actual, so again, I'll type in a one and then I'll shut the brackets.

And the value we get to is 100.15. Hey, that's great.

We bought it from 100 and it's now gone up to a hundred 0.15.

We've made a capital return.

So to calculate my capital return, I'll take that 100.15.

I want to convert everything into percentages, so I'm gonna put a percentage after that.

I'll then work out the difference between that and the original purchase price.

And again, I'll make that a percentage and I can see the capital return that we've made.

0.1506. Awesome.

So my total profit is the sum of those two, and it comes to 2.6506%.