Table: Current Bonds Available Par Value Time to Maturity $100 000 15 years 12% paid Semi-Annually Coupon rate Yield to Maturity Coupon Payment dates Call features 12% 1 Apr, 1 Oct NO Year Issued 2018 Information John purchased the Bond on the 1st of April 2018 at par when the bond was issued. When he sells the bond in two years, he anticipates the yield to maturity (YTM) will be 10%. A.) Calculate the realised horizon yield for the Bond for a two year holding period assuming that your reinvestment rate is 11% for 2018, 10% for 2019 and 2020 of the holding period. B.) If there was no reinvestment assumption for interest rates after purchasing the bond what is the realized horizon yield for the investor when holding the bond for 2 years?
Table: Current Bonds Available Par Value Time to Maturity $100 000 15 years 12% paid Semi-Annually Coupon rate Yield to Maturity Coupon Payment dates Call features 12% 1 Apr, 1 Oct NO Year Issued 2018 Information John purchased the Bond on the 1st of April 2018 at par when the bond was issued. When he sells the bond in two years, he anticipates the yield to maturity (YTM) will be 10%. A.) Calculate the realised horizon yield for the Bond for a two year holding period assuming that your reinvestment rate is 11% for 2018, 10% for 2019 and 2020 of the holding period. B.) If there was no reinvestment assumption for interest rates after purchasing the bond what is the realized horizon yield for the investor when holding the bond for 2 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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Transcribed Image Text:Table: Current Bonds Available
Par Value
Time to Maturity
$100 000
15 years
12% paid Semi-Annually
Coupon rate
Yield to Maturity
Coupon Payment dates
12%
1 Apr, 1 Oct
Call features
NO
Year Issued
2018
Information
John purchased the Bond on the 1st of April 2018 at par when the bond was issued. When
he sells the bond in two years, he anticipates the yield to maturity (YTM) will be 10%.
A.)
Calculate the realised horizon yield for the Bond for a two year holding period assuming that
your reinvestment rate is 11% for 2018, 10% for 2019 and 2020 of the holding period.
B.)
If there was no reinvestment assumption for interest rates after purchasing the bond what
is the realized horizon yield for the investor when holding the bond for 2 years?
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