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2. Suppose you buy a 20-year, 8.5% (annual payment) coupon bond for $950 (when its yield to maturity is 7.50%) and plan to hold it
2. Suppose you buy a 20-year, 8.5% (annual payment) coupon bond for $950 (when its yield to maturity is 7.50%) and plan to hold it for 15 years. Your forecast is that the bonds yield to maturity will be 8.25% when it is sold and that the reinvestment rate on the coupons will be 6.5%. Evaluate the return from each of the following sources: (1) What is the total coupon payment? (2 points) (2) Whats the interest on internet? (2 points) (3) Whats the capital gain/loss? (2 points)
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