Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In

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Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In 10 years’ time, the bond’s yield to maturity has risen to 7% (EAR).

a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond?

b. If instead you hold the bond to maturity, what internal rate of return will you earn on your investment in the bond?

c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain.

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Feb 24, 2024 11:01 PM

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Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In

Question:

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Analyzing your Treasury bond investment a Selling the bond now When you sell the bond now youll rece...View the full answer

Corporate Finance The Core

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