You buy a 5-year bond with a $1000 face value, a 4% annual coupon rate, and a yield to maturity of 2.49%. The bond pays coupons annually. A. Calculate the five-year holding period return (HPR) if you hold the bond until maturity and reinvest all coupons at the yield to maturity of 2.49%. B. Calculate the two-year holding period return (HPR) if you hold the bond for 2 years and then sell it. Assume you sell after getting the second coupon payment and that the yield to maturity remains at 2.49%. C. Now assume you are the person who buys the bond after 2 years and holds it to maturity. What will be your holding period return for the 3 years that you hold the bond? Again assume you reinvest any coupons at the yield to maturity of 2.49%.

D. Calculate the five-year holding period return (HPR) if you hold the bond until maturity and reinvest all coupons the current available yield. Assume that each coupon is able to be reinvested for the necessary number of years at that yield. (For example, the coupon received at the end of year 1 is reinvested for the remaining 4 years at an interest rate of 2.99% per year.) E. Calculate the two-year holding period return (HPR) if you hold the bond for 2 years and then sell it. Assume you receive the second years coupon and reinvest any coupons at the current available yield. Assume that each coupon is able to be reinvested for the necessary number of years at that yield. F. Now assume you are the person who buys the bond after 2 years and holds it to maturity. What will be your holding period return for the 3 years that you hold the bond? Again, assume you reinvest any coupons at the current yield to maturity.

For parts D-F, use the following table of YTMs: Time Now End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5 Yield to Maturity 2.49% 2.99% 3.49% 3.99% 4.49% 4.99%