Question 13

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12. Assume a year ago the U.S. Treasury yield curve was flat at a rate of 4% per year (with annual compounding) and you bought a 30-year U.S. Treasury bond. Today it is flat at a rate of 5% per year (with annual compounding). What rate of return did you earn on your initial investment: a. If the bond was a 4% coupon bond? b. If the bond was a zero-coupon bond? 13. Challenge Problem: Repeat the previous problem with semiannual compounding. Now the yields and rates of return will be given as APRs with semiannual compound- ing. The initial flat term structure was at 4% per year with annual compounding. What rate per year with semiannual compounding produces the same effective annual rate? Make a similar adjustment for the current rate. following fohle are the same exsent for their a