Question

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 4.0% if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 4.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Economy	Probability	YTM		Price	Capital Gain	Coupon Interest	HPR
Boom	0.25	10.0	%					%
Normal Growth	0.50	9.0	%					%
Recession	0.25	8.0	%					%

Answer 1