Bond is interest rate you earn on your investment

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Reference no: EM131870052

The YTM (yield to maturity) on a 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 (annualized) return is known as the holding period yield (HPY). a. Suppose that today you buy a 8 percent annual coupon bond for $928.40. The bond has 12 years to maturity and par value $1000. What rate of return do you expect to earn on your investment over the 12 years (YTM)? b. Three years from now, the YTM on your bond has declined by 3 percent, and you decide to sell. What price will your bond sell for? What is the HPY on your investment? Compare this yield to the YTM when you first bought the bond. Why are they different?

Reference no: EM131870052

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