What return would the bondholder earn in case

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Hillier, D.; Ross, S. A.; Westerfield, R. W.; Jaffe, J.; Jordan, B. (2016), Corporate Finance, 3rd ed. European Edition, New York (McGraw-Hill), ISBN 978-0077173630: Chapter 5: Bond, Equity and Firm Valuation Exam Questions Page 147

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Question: A 6-year government bond makes annual coupon payments of 4 per cent and offers a yield of 8 per cent annually compounded. Suppose that one year later the bond still yields 8 per cent. What return has the bondholder earned over the 12-month period? Now suppose that the bond yields 6 per cent at the end of the year. What return would the bondholder earn in this case? The face value of the bond is £1,000.

Reference no: EM132491067

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