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You buy a semiannually paying coupon bond with a face value of $1,000 and a coupon rate of 8%. The bond matures in 10 years
You buy a semiannually paying coupon bond with a face value of $1,000 and a coupon rate of 8%. The bond matures in 10 years from today. Currently, the bond has a yield to maturity of 9%. Suppose that the yield to maturity changes to 10%18 months later. What is your rate of return from this bond investment over the 18 months? (Hint: [a] 18 months is 1.5 years. [b]. You need to calculate the bond price at today ("P 0 ") and the bond price 18 months later ("PP"), then calculate bond rate of return over the 18 months. [c]. Think carefully about what you should use for "Coupon" in the bond rate of return formula.)
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