Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%.

You hold the bond for five years before selling it.

a. If the bond’s yield to maturity is 6% when you sell it, what is the annualized rate of return of your investment?

b. If the bond’s yield to maturity is 7% when you sell it, what is the annualized rate of return of your investment?

c. If the bond’s yield to maturity is 5% when you sell it, what is the annualized rate of return of your investment?

d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.

Consider the following bonds.

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Bond Coupon Rate (annual payments) Maturity (years) A 0% B 0% C 4% D babad 8% 5050 15 10 15 10