TOTAL RATE OF RETURN Please do not use excel just show how to calculate

5 year investment Horizon. Which bond to buy ? (Using TROR)

BOND COUPON (%) MATURITY YTM A 5 3 9

B 6 20 8.6 C 11 15 9.2 D 8 5 8

An investor has two bonds to choose from

Coupon Maturity Yeild

(A) 0% 2yrss 6.5% (B) 6% 5yrs 6%

Two years from now, the investor believes the yield level will drop by 50bp. Which bond should the investor buy?