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You purchase an odd five-year bond that pays exactly $500 / year for five years (nothing additional at maturity), with the first payment one year
You purchase an odd five-year bond that pays exactly $500 / year for five years
(nothing additional at maturity), with the first payment one year from now. At
the time of the purchase, the YTM was 9%. You calculate the duration of the
bond, and you plan to hold the bond to its duration, reinvesting the $500
payments at the YTM and selling the bond when the duration is reached. What
is your expected wealth when you sell the bond, from both the reinvested
payments and selling the bond?
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