Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates

Question:

Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the market thinks that they will remain unchanged over the coming year. In each question, choose the bond that will provide the higher holding-period return over the next year if you are correct. Briefly explain your answer.

a. i. A Baa-rated bond with coupon rate 6% and time to maturity 20 years.

ii. An Aaa-rated bond with coupon rate of 6% and time to maturity 20 years.

b. i. An A-rated bond with coupon rate 3% and maturity 20 years, callable at 105.

ii. An A-rated bond with coupon rate 6% and maturity 20 years, callable at 105.

c. i. A 4% coupon non callable T-bond with maturity 20 years and YTM = 6%.

ii. A 7% coupon non callable T-bond with maturity 20 years and YTM = 6%.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...