Question
A bond with face value of Rs. 1,000 and annual coupon payment of 12% with 6 years remaining for maturity was selling for Rs. 1,100
A bond with face value of Rs. 1,000 and annual coupon payment of 12% with 6 years remaining for maturity was selling for Rs. 1,100 immediately after it had paid the coupon. An investor buys the bond. He holds the bond for next four years and immediately after receiving the 4th coupon payment sells it for Rs. 1,075. The investor was able to re-invest the interim coupon payments at 10%. Find the following: i. The YTM of the bond when the investor bought the bond (0.5) ii. YTM of the bond when the investor sold it (0.5) iii. The yield realised by the investor over the holding period. (0.5) iv. How the realised yield compares with the YTM of the bond when investor purchased it
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