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A 30-year maturity bond has a 5.5% coupon rate, paid annually. It sells today for $881.35. A 20-year maturity bond has a 5.0% coupon rate,
A 30-year maturity bond has a 5.5% coupon rate, paid annually. It sells today for $881.35. A 20-year maturity bond has a 5.0% coupon rate, also paid annually. It sells today for $891.7. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 6.5% and 15-year maturity bonds will sell at yields of 6.0%. Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 7.4%. a. Calculate the annualized) expected rate of return of the 30-year bond over the 5-year period. (Round your answer to 2 decimal places.) 30-year bond [ % b. What is the annualized) expected return of the 20-year bond? (Round your answer to 2 decimal places.) 20-year bond %
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