Question
Suppose that at t= 0, you purchased a zero-coupon bond with the following features: Current price of a bond: $765.432; Face value of bond: $1,000.000;
Suppose that at t= 0, you purchased a zero-coupon bond with the following features: Current price of a bond: $765.432; Face value of bond: $1,000.000; and maturity of bond: 7 years. Suppose that, three years after your purchased this bond, at time t= 3 years, the continuously compounded market interest rate as applicable to your bond increased by 150 basis points (1.500%). a) What is your continuously compounded holding period return, if you hold the bond all the way till its maturity? b) What is your continuously compounded holding period return, if you hold the bond for three years, that is till time t= 3 years?
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