Question
A government bond matures in 7 years, makes annual coupon payments of 4.8% and offers a yield of 2.8% annually compounded. Assume face value is
A government bond matures in 7 years, makes annual coupon payments of 4.8% and offers a yield of 2.8% annually compounded. Assume face value is $1,000. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
a. Suppose that one year later the bond still yields 2.8%. What return has the bondholder earned over the 12-month period?
b. Now suppose that the bond yields 1.8% at the end of the year. What return did the bondholder earn in this case?
I know that the rate of return for a is 2.8% I am looking for help on b.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started