Question
You currently hold a 20-year AAA-rated corporate bond with a coupon rate of 3% trading at a yield to maturity of 3%. You are preparing
You currently hold a 20-year AAA-rated corporate bond with a coupon rate of 3% trading at a yield to maturity of 3%. You are preparing a 3-year horizon forecast and expect the YTM of the bond to increase to 4.25 % over the period at the end of which it will have 17 years remaining to maturity. You also assume that you will be able to reinvest all coupons at a rate of 2.75% over your holding period.
What is the current price of this bond investment? 1,000
What is your forecasted capital gain or loss on this bond investment? -149.16
What is your total forecasted dollar return on the bond? 13.33
What is your forecasted annualized percentage return on the invested? .44%
Those are the correct answers but I don't know how to get there?
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