Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in five years,
Question:
Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in five years, and have a 7% annual coupon rate paid semiannually.
a. Calculate the:
(1) Current yie ld.
(2) Yield to ma turity.
(3) Horizon yield (also called realized compound return) for an investor with a three-year holding period and a reinvestment rate of 6% over the period. At the end of three years the 7% coupon bonds with two years remaining will sell to yield 7%.
b. Cite one major shortcoming for each of the following fi xed-income yield measures:
(1) Current yie ld.
(2) Yield to ma turity.
(3) Horizon yie ld (a lso c alled re alized c ompound re turn).
LO.1
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Related Book For
Essentials Of Investments
ISBN: 9780697789945
8th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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