Coupons are paid semi-annually. Calculate the trading price of the bonds at time zero. This will be
Question:
Coupons are paid semi-annually. Calculate the trading price of the bonds at time zero. This will be also your purchasing price.
Tenor | Coupon | Yield | |
2 Year | 0.5% | 0.52% | |
10 Year | 2.25% |
| 1.81% |
1) What is the Internal Rate of Return of the 2yr bond, assuming you buy it now and sell it in 1year from now?
2) What is the Internal Rate of Return of the 10yr bond, assuming you buy it now and sell it in 1year from now?
3) What is the Internal Rate of Return of the 2yr bond, assuming you buy it now and sell it in 2year from now?
4) What is the Internal Rate of Return of the 10yr bond, assuming you buy it now and sell it in 2years from now?
5) What is the IRR of the 10year bond at the end of the 2nd year, assuming that at the end of the 1st year the yield goes up by 50bps and stays at that yield level until maturity?
Payment are semi/annual.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill