Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9% coupon bond selling at par. The investor expects that he can reinvest the coupon payments at an annual interest rate of 9.4% and that at the end of the investment horizon two-year bonds will be selling to offer a yield to maturity of 11.2%. What is the total return for this bond?
Answer to relevant QuestionsTwo portfolio managers are discussing the investment characteristics of amortizing securities. Manager A believes that the advantage of these securities relative to nonamortizing securities is that because the periodic cash ...(a) Show the cash flows for the following four bonds, each of which has a par value of $1,000 and pays interest semiannually. (b) Calculate the yield to maturity for the four bonds. Bond Coupon Rate(%) Number of Yearsto ...What are the limitations of using duration as a measure of a bond’s price sensitivity to interest-rate changes? For a corporate bond that has a low credit rating, why might an analytical duration be limited as a measure of interest-rate risk? State why you would agree or disagree with the following statement: If two bonds have the same dollar duration, yield, and price, their dollar price sensitivity will be the same for a given change in interest rates.
Post your question