Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the

Question:

Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%.

You hold the bond for five years before selling it.

a. If the bond’s yield to maturity is 6% when you sell it, what is the rate of return of your investment?

b. If the bond’s yield to maturity is 7% when you sell it, what is the rate of return of your investment?

c. If the bond’s yield to maturity is 5% when you sell it, what is the rate of return of your investment?

d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...