Corporate bond pays an annual interest payment

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1. Suppose that a 20 year Corporate bond pays an annual interest payment of $60. The bond sold for $1000 last year and is currently valued at $1050. Compute the rate of return. Briefly discuss the role of the capital gain or capital loss in your result.

2. Compute the yield to maturity on a $10000 face value T-Bill which has 38 days to maturity and sells for $9940 on the secondary market.

3. Suppose that CNN headline news reports that bond prices have "plunged" (i.e. decreased) due to expectations of increased inflation. What does this imply about bond interest rates? Based upon the interest rate as a yield to maturity, briefly explain why.

Reference no: EM131172347

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