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Suppose you purchase a 10 year 5%(semi-annual pay) coupon bond. You plan to hold the bond for 6 months and then sell it. if the
Suppose you purchase a 10 year 5%(semi-annual pay) coupon bond. You plan to hold the bond for 6 months and then sell it.
- if the bond's yield to maturity was 4% when you purchased and sold the bond, what cash flows will you pay and receive from you investment in the bond per $1000 face value?
- what is the six-month rate of return on your investment?
- what would have been the rate of return if instead the yield to maturity increases to 5% just when you sell the bond in six months? without doing computations, what would have happened in the scenario above if you had held a 5 year bond for six months instead of a 10 year bond(assuming its yield to maturity was also 4% when you purchased?
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