What is the total return on investment

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Assume your investment horizon is six years and you buy an eight-year 8.5% annual coupon bond with a face value of € 1,000. The yield curve is flat and at the 10% level. What is the total return on your investment in the following cases:

(a) immediately after the purchase of the bond, the yield curve drops to 8% and remains there until you sell the bond.

(b) immediately after the purchase of the bond, the yield curve rises to 12% and remains there until you sell the bond.

(c) How much market risk do you face? Explain why?

Reference no: EM133076063

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