Suppose you purchase a 3year 5percent coupon bond at par and hold it for two years During that time the interest rate

Suppose you purchase a 3year 5percent coupon bond at par and hold it for two years During that time the interest rate

Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two years. During that time, the interest rate falls to 4 percent. Calculate your annual holding period return. Instructions: Enter your response rounded to two decimal places Holding period return A 10-year zero-coupon bond has a yield of 6 percent. Through a series of unfortunate circumstances, expected inflation rises from 2 percent to 3 percent. The face value of the bond is $100 a. Assuming the nominal yield rises in an amount equal to the rise in expected inflation, compute the change in the price of the bond. Instructions: Enter your responses to the nearest penny (two decimal places) Price (with 2% expected inflation) = $ { Price (with 3% expected inflation) = $ [ by $ The price has fallen b. Suppose that expected inflation is still 2 percent, but the probability that it will move to 3 percent has risen. Describe the consequences for the price of the bond inflation risk. Investors will require compensation for taking on additional risk, so the price will There is linareased fall and the yield will rise