Consider two bonds with the following terms: Bond # Maturity (years) 1 2 2 15 Coupon...

 

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Consider two bonds with the following terms: Bond # Maturity (years) 1 2 2 15 Coupon (%) 6.50 4.75 Yield (%) 5.00 5.00 Both bonds have $1,000 par and pay coupons quarterly. The yield curve is flat and all yields are 5% (APR, compounded semiannually). An investor plans to buy both bonds and hold them for two years. All received coupon payments will be reinvested immediately in a money-market account earning the same annual return as the flat yield on bonds. What is the investor's realized rate of return for each bond over the two-year investment horizon (calculated as APR with semi-annual compounding), if all yields experience a 25-basis point increase every 3 months, just before the coupon payment? b) (8%) Consider the same scenario as in a) above except that all yields experience a 25-basis point decrease every 3 months, just before the coupon payment. What is the investor's realized rate of return for each bond over the two-year investment horizon (calculated as APR with semi-annual compounding) then? Consider two bonds with the following terms: Bond # Maturity (years) 1 2 2 15 Coupon (%) 6.50 4.75 Yield (%) 5.00 5.00 Both bonds have $1,000 par and pay coupons quarterly. The yield curve is flat and all yields are 5% (APR, compounded semiannually). An investor plans to buy both bonds and hold them for two years. All received coupon payments will be reinvested immediately in a money-market account earning the same annual return as the flat yield on bonds. What is the investor's realized rate of return for each bond over the two-year investment horizon (calculated as APR with semi-annual compounding), if all yields experience a 25-basis point increase every 3 months, just before the coupon payment? b) (8%) Consider the same scenario as in a) above except that all yields experience a 25-basis point decrease every 3 months, just before the coupon payment. What is the investor's realized rate of return for each bond over the two-year investment horizon (calculated as APR with semi-annual compounding) then?