A 4% coupon has a maturity of two years and a yield to maturity of 6%. For the first year, interest rates stay at 6% and thereafter they change to 4%. Which of thefollowing is closest to the realized yield on the bond at its final maturity?A. 5.95% B. 5.96%C. 6.22%

The answer is a. 5.95%.Explanation:Step 1:Step-by-Step Calculation:First Year:Coupon Payment: 4% of…

Answered: A 4% coupon has a maturity of two years…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 4% coupon has a maturity of two years and a yield to maturity of 6%. For the first year, interest rates stay at 6% and thereafter they change to 4%. Which of the following is closest to the realized yield on the bond at its final maturity?A. 5.95% B. 5.96%C. 6.22%