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Suppose this year you buy 5% coupon rate, $100 face value bond for $90 that has 3 years left till maturity. Suppose next year market interest rates decrease to 2% and you decide to sell it your bond

Suppose this year you buy 5% coupon rate, $100 face value bond for $90 that has 3 years left till maturity. Suppose next year market interest rates decrease to 2% and you decide to sell it your bond that year. a) Calculate the selling price of your bond next year. In another words, what price would make your bond competitive when market yields are at 2.0%? b) Given the selling price from part (a), what was your annual rate of return from owning this bond? You can assume you kept a single coupon payment during the year you owned the bond.

Apr 12 2021 View more View Less

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