The YTM on a bond is the interest rate you earn on your investment if interest rates
Question:
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).
a. Suppose that today you buy an 8 percent annual coupon bond for $875. The bond has 10 years to maturity. What rate of return do you expect to earn on your investment?
b. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? What is the HPY on your investment? Compare this yield to the YTM when you first bought the bond. Why are they different?
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...
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a The rate of return you expect to earn if you purchase a bond and hold it until maturity is the YTM ...View the full answer
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Related Book For 
Essentials Of Corporate Finance
ISBN: 9780073382463
7th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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