Question
On January 1, 2017, you buy a three-year, annual-pay coupon bond with 6% coupon rate, $1000 face value, and yield to maturity 6%. On January
On January 1, 2017, you buy a three-year, annual-pay coupon bond with 6% coupon rate, $1000 face value, and yield to maturity 6%. On January 1, 2018, you receive the first coupon of the bond, and on January 1, 2019, you receive the second coupon. Immediately after receiving the second coupon, you sell the bond. Assume that yields on bonds of all maturities are equal to 4.5% on January 1, 2019. Same question has different parts that are listed below, please help me.
a) What is the price that you pay for the bond on January 1, 2017?
b) What is the selling price of the bond on January 1, 2019?
c) What is the value as of January 1, 2019 of all coupon payments that you have received as part of this bond investment? (Assume that you can re-invest coupons at the YTM (6%))
d) What is your total holding period return (HPR) on your 2-year bond investment? Hint: HPR = [(Price sold+Cash flows) / (Price bought)] - 1
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