In: Finance
The YTM on the bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield.
a.) You buy a bond with an annual coupon rate of 11 percent for $1,200. This bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000.
ANSWER: 8.80%
b-1.) Two years from now, the YTM on your bond has decreased by 1 percent, and you decide to sell it. What price will your bond sell for?
b-2.) What is the HPY on your investment?
a.) | Expected rate of return | 8.80% |
b-1.) | Bond Price | ????????? |
b-2.) | HPY | ???????? % |