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A 4-year 5.8% bond is selling to yield 7%. The bond pays coupon annually. 1. What is the price of the bond? Assuming that in
A 4-year 5.8% bond is selling to yield 7%. The bond pays coupon annually.
1. What is the price of the bond?
Assuming that in the following year (at the very end of year 1), the interest rate decreases from 7% to 6.2%;
- What is the price of the bond at the end of 2nd year?
- How much of the price change is due to yield change and how much is due to time decay?
- What would be the internal rate of return assuming that you will sell this bond at the end of
- 2nd year?
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