Question # 4 (6 marks)

Suppose that today you buy a 5% annual coupon bond for $1,090. The bond has 5 years to maturity. Three years later, the YTM on your bond has increased by 1% and you decide to sell.

Required: (***In your answers, carry all decimal places for rates, round $values to 2 decimal places.***)

(a) What rate of return did you expect to earn on your investment when you bought the bond?

(b) What price will your bond sell for after holding it for three years?

(c) What is the holding period yield on your investment?