You will earn the YTM on a bond if you hold the bond until
maturity and if interest rates don't change. If you actually sell
the bond before it matures, your realized return is known as the
holding period yield (HPY).
a. Suppose that today you buy a bond with an
annual coupon rate of 6 percent for $1,150. The bond has 20 years
to maturity. What rate of return do you expect to earn on your
investment? (Do not round intermediate calculations. Enter
your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Expected rate of return
%
b1. Two years from now, the YTM on your bond has
declined by 1 percent, and you decide to sell. What price will your
bond sell for? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Bond price
$
b2. What is the HPY on your investment?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 2 decimal places, e.g.,
32.16.)
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