An investor buys a five-year, 7.5% annual coupon bond priced to yield 5%. The investor plans to sell the bond in two years once the second coupon payment is received.
1. Calculate the purchase price of the bond.
2. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 3.00%
3. Calculate Macaulay Duration
4. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 7.00%
5. Calculate Macaulay Duration