Question: Bond returns ( S 3 . 1 ) An 8 % , five - year bond yields 6 % . If this yield to maturity

Bond returns

(

3.1)

8 %,

five

-

year bond yields

6 % .

If this yield to maturity remains unchanged, what will be its price one year hence? Assume annual coupon payments and a face value of $

1, 000 .

What is the total return to an investor who held the bond over this year?

What can you deduce about the relationship between the bond return over a particular period and the yields to maturity at the start and end of that period?

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