Find the compound yield on the investment

Assignment Help Financial Management

Reference no: EM132031680

Topic: Bond Returns

1) For each of the below, indicate True or False. No explanation is required.

Given: At t = 0 you bought a 3-year, 9 percentage coupon bond with a 7 percentage YTM.

You held the position until t = 3. Each coupon that was received prior to t = 3 was reinvested and rolled over at a 7 percentage interest rate.

Statement: The realized compound yield on the investment was 7 percentage.

Given: At t = 0 you bought a 4-year zero coupon bond with a 9 percentage YTM. Two years later you sold the bond when it was trading at a 12 percentage YTM.

Statement: The realized compound yield on your two-year investment was somewhere between 9 percentage and 12 percentage. Given: At t = 0 a 10-year zero coupon bond had an 8 percentage YTM.

You bought the bond at t = 2 when it had 8 years left to maturity and was trading at a 7 percentage YTM. You sold the bond 3 years later when its YTM was greater than 7 percentage.

Statement: Your realized compound yield from t = 2 to t = 5 was less than 7 percentage.

Given: From t = 3 to t = 4 the price of a risk free bond increased, and its YTM also increased.

Statement: The coupon rate on this bond must be less than the YTM. As a general rule, if one expects interest rates are going to surprise to the upside, it would be wiser to invest in longer term bonds.

Reference no: EM132031680

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