A twenty-year government bond with a face value of 120$ makes annual coupon payments of 8% and offers a yield of 3% annually compounded. Suppose that one year later the bond yields at 4%. a) Is it good or bad news for bondholders? Explain b) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results. Instead, suppose now that one year later the bond yields at 5.5%. c) Is it good or bad news for bondholders? Explain d) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results.
A twenty-year government bond with a face value of 120$ makes annual coupon payments of 8% and offers a yield of 3% annually compounded.
Suppose that one year later the bond yields at 4%.
a) Is it good or bad news for bondholders? Explain
b) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results.
Instead, suppose now that one year later the bond yields at 5.5%.
c) Is it good or bad news for bondholders? Explain
d) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 6 images
