Consider the following par bond (ie coupon rate=yield): Year: 10 and 20 years . Yld 1.50% and
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Consider the following par bond (ie coupon rate=yield): Year: 10 and 20 years . Yld 1.50% and 2.0%
Q1a. based on linear interpolation, what is the expected yield for a 20-year bond ONE year later, assuming the yield curve shape stays the same?
Q1b. how much should the 20y bond be priced 1 year later (as a 19-year bond)?
Q1c. if you hold the 20Y for 1 year, what is your total return from the investment assuming the yield curve does not change?
Hint: your total return comes from coupon collection as well as price appreciation or depreciation.
Related Book For
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins
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