Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In

Question:

Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par.

In 10 years’ time, the bond’s yield to maturity has risen to 7% (EAR).

a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond?

b. If instead you hold the bond to maturity, what internal rate of return will you earn on your investment in the bond?

c. Is comparing the IRRs in

(a) versus

(b) a useful way to evaluate the decision to sell the bond?

Explain.

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Corporate Finance

ISBN: 9780137845071

6th Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Jun 12, 2024 01:03 AM

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Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In

Question:

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Corporate Finance

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