Question

Suppose you purchase a 30​-year, ​zero-coupon bond with a yield to maturity of 6.3%. You hold the bond for five years before selling it.

a) If the​ bond's yield to maturity is 6.3 % when you sell​ it, what is the annualized rate of return of your​ investment?

b) If the​ bond's yield to maturity is 7.3 % when you sell​ it, what is the annualized rate of return of your​ investment?

c). If the​ bond's yield to maturity is 5.3% when you sell​ it, what is the annualized rate of return of your​ investment?

d.) Even if a bond has no chance of​ default, is your investment risk free if you plan to sell it before it​ matures? Explain.

Answer 1