What has been the rate of return from holding the bond

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Reference no: EM13997287

You purchase a 20-year bond today with a $10,000 face value that makes annual coupon payments at a 5% coupon rate.

(a) If the yield to maturity on 20 year bonds at the time of purchase was 4%, how much did you pay for the 20 year bond?

(b) After holding the bond for 1 year, you find that the yield to maturity on 19 year bonds is 5%. What is new price of your bond and what has been the rate of return from holding the bond over the first year?

(c) After holding the bond for a second year, you find that the yield to maturity on 18 year bonds is 3.5%. What is new price of your bond and what has been the rate of return from holding the bond from the first year to the second?

Reference no: EM13997287

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