Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 4%. You hold the

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Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 4%. You hold the bond for five years before selling it.

a. If the bond’s yield to maturity is 4% when you sell it, what is the internal rate of return of your investment?

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

c. If the bond’s yield to maturity is 3% when you sell it, what is the internal 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.

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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