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You are planning to a purchase a bond that has 24 years to maturity, a $1,000 par value,and a 7% coupon rate. Currently rates on
You are planning to a purchase a bond that has 24 years to maturity, a $1,000 par value,and a 7% coupon rate. Currently rates on similar risk bonds with a 24-year maturity are yielding 8%. You expect to sell the bond in four years and at that point you expect rates on similar bonds (risk, maturity, etc.) to be 5.2% in four years when you sell the bond. If you are correct in your interest rate forecast four years out, you buy today and sell in four years, what will your yield be over the four year investment horizon? This is similar to yield to call. Think about the steps - what do you need to know to calculate a yield?
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