A1=1000*7.5%/8%*(1-1/1.08^10)+1000/1.08^10=966.45
A2=1000*7.5%/6%*(1.06^20-1)=2758.92
980*(1+r)^20=A1+A2
=>r=6.90%
Horizon Analysis • Example: Suppose you buy a 30-year, 7.5% (annual payment) coupon bond for $98...
Example: Suppose you buy a 30-year, 7.5% (annual payment) coupon bond for $98 0 (when its yield to maturity is 7.67%) and you plan to hold it for 20 years. Your for ecast is that the bond's yield to maturity will be 8 % when it is sold and the reinvest ment rate on the coupons will be 6%. What is realized compound return?
Q. Suppose you buy a 30-year, 7.5% (annual payment) coupon bond when its yield to maturity is 7.67% and you plan to hold it for 20 years. Your forecast is that the bond’s yield to maturity will be 8% when it is sold and that the reinvestment rate on the coupons will be 6% for the first 10 years and 7% for the next 10 years. a. What is the initial price of the bond when you buy it? b....
#5. Suppose that we invest in a bond with a 3-year horizon. We consider purchasing a bond with the face value of $1,000, the maturity of 20 years, and the coupon rate of 8%. The bond pays the coupons semi-annually. The price of the bond is $907.99 and the YTM is 9%. We expect that we can reinvest the coupon payments at an annual rate of 6%. At the end of the horizon, the 17-year bond will be selling to...
You buy a bond with a $1,000 par value today for a price of $900. The bond has five years to maturity and makes annual coupon payments of $80 per year. You hold the bond to maturity, but you do not reinvest any of your coupons. What was your realized compound return over the holding period?
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