Part B:

At $t=0,$ you purchase a four$-$year, $5$ percent coupon bond $($paid annually$)$ that is priced tc

yield $6$ percent continuously compounded $($YTM $=6\%$ continuously compounded$).$ The

face value of the bond is $$1,000.$ The bond issuer is the U$.$S$.$ government $($no liquidity

risk$).$

You are also given that your holding period $($investment horizon$)$ equals to $3\mathrm{.}70$ years

years$).$

Suppose that the market interest rate changes to $5\mathrm{.}50$ percent continuously compoundec

during the first year of your purchase $($within year $1),$ and it remains at that level for the

remaining life of the bond.

Assume that, the reinvestment rate for the first coupon payment is the new interest rate

that is$,5\mathrm{.}50$ percent continuously compounded. In addition, you will reinvest the coupor

payments in a zero$-$coupon bond.

What is your continuously compounded Holding Period Return of your investment at the

end of your investment horizon $(t=3\mathrm{.}70)$ years?

$($Round$-$off to four decimal places, to obtain as accurate answer as possible on Canvas.$)$