Question: Consider a bond with a $1,000 face value, five years to maturity, and $80 annual coupon interest payments. The bond currently sells at $1,000. The

  1. Consider a bond with a $1,000 face value, five years to maturity, and $80 annual coupon interest payments. The bond currently sells at $1,000. The bonds yield is expected to decline to 7% at the end of three years. Interest income is assumed to be invested at 7.5%.
  1. Calculate the bonds price change over the 3-year holding period.
  2. Calculate the total value of the coupon interest payments plus the interest on the coupon payments at the end of the 3-year holding period.
  3. Calculate the bonds realized 3-year holding period return.

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