Question

An investor buys a bond that has a 5-year life, an annual coupon
rate of 5.5%, and is currently trading at a Yield to Maturity of
5.5%. The coupons are paid semi-annually, and the bond has a par
value of $1,000. After holding the bond for 1-year, the bonds Yield
to Maturity has decreased from 5.5% to 4.0%. Assume that the
investor has received a full year of coupon payments.

What is this investors Rate of Return from this investment?

9.4%

11.0%

5.5%

4.0%

Answer #1

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16. Suppose that an investor with a five-year investment
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selling at par. The investor expects that he can reinvest the
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A five-year bond has a face value of $1,000. Its coupon rate is
5% p.a. and coupons are paid semi-annually.
a. If the market yield at issuance is 5%, without calculation
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c. What would the holding period yield p.a. on this investment
be?

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