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The YTM on 1-year ZCBS is 2%. You expect the YTM on 1-year ZCBs to be 4% next year. What is your expected 2-year
The YTM on 1-year ZCBS is 2%. You expect the YTM on 1-year ZCBs to be 4% next year. What is your expected 2-year HPR on buying a 1-year ZCB and reinvesting the money in a 1-year ZCB next year? The YTM on 2-year ZCBS is 4% and you are risk- neutral and your investment horizon is 2 years. Do you prefer buying a 2-year ZCB or investing in short term bonds as suggested above?
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The Holding Period Return HPR for a zerocoupon bond ZCB can be calculated using the formula HPR FVPV ...
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
6th edition
9781305178045, 1285429648, 1305178041, 978-1285429649
