What is expected ror

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1. a) An investor with 1-year horizon is considering purchases 4% coupon, 20-year bond, now at par. She expects the yield to increase by 1% when her holding period ends. What is her expected ROR?

b) A 1-year note with a 1% coupon (from the same issuer) is also priced at par. Which should she purchase?

2. a) Consider a 10-year bond with a 4% coupon and 4.25% yield-to-maturity. You buy it today and sell after one year at a 3.99% yield. What is your (actual) ROR?

b) Now consider a 10-year bond with a 0% coupon (not a typo) and 4.25% yield-to-maturity. You buy it today and sell after one year at a 3.99% yield. What is your (actual) ROR? What's the story here?

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Reference no: EM133067833

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