Consider three bonds, all with a par value of $1,000:

 

A bond has a coupon of 10% which is paid annually, and has a 10 year maturity. The par value of the bond is $1000. An investor buys a bond today and the interet rates are 10%. What is the rate of return for the investor if he holds the bond for one year and the interest rates are 12% at the end of the year? 

 Having better information than the rest of the market participants does not help you make profits in an efficient market or uncertain? Explain your answer.

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(i) (ii) (iii) Bond A B C Coupon Rate 8% 7% 9% Market Price $1,100 $900 $1,000 What is the yield to maturity of bond C? Is the yield to maturity of bond A greater than or less than 8%? Explain your answer. Is the yield to maturity of bond B greater than or less than 7%? Explain your answer. (i) (ii) (iii) Bond A B C Coupon Rate 8% 7% 9% Market Price $1,100 $900 $1,000 What is the yield to maturity of bond C? Is the yield to maturity of bond A greater than or less than 8%? Explain your answer. Is the yield to maturity of bond B greater than or less than 7%? Explain your answer.

Answer rating: 100% (QA)

SOLUTION Yield to Maturity of Bond C The yield to maturity of a bond represents the total return that an investor can expect from holding the bond until maturity It takes into account the bonds coupon ... View the full answer