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The yield to maturity of a bond represents the interest rate on the investment if interest rates remain the same. If you sell the bond
The yield to maturity of a bond represents the interest rate on the investment if interest rates remain the same. If you sell the bond before maturity, this is called yield during the holding period. has. Let's say you buy a bond today that has a coupon rate of 9%, annual coupons of $1,200, and a maturity of 10 years. What chance rate of return should you expect from this investment? b. In two years, the yield to maturity of your bond decreases by 2.5% and you decide to sell. What will the price of the bond be? What will be the return during the holding period of your investment? Compare this yield to the yield to maturity when purchasing the bond. How do you explain this difference?
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a To calculate the expected rate of return when purchasing the bond we need to consider the coupon p...Get Instant Access to Expert-Tailored Solutions
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