A six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Assume face value is $1,000. a. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period? b. Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case?
A six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Assume face value is $1,000. a. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period? b. Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case?
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 six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Assume face value is $1,000.
a. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period?
b. Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case?
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