Currently, the yield-to-maturity yield on 10-year US Treasury bonds with zero coupons is 0.66% (0.0066 < 1%).You
Fantastic news! We've Found the answer you've been seeking!
Question:
- Currently, the yield-to-maturity yield on 10-year US Treasury bonds with zero coupons is 0.66% (0.0066 < 1%). You buy these bonds at $936 per bond and plan to keep them as a "safe" long-term investment (eg 4-5 years). The face value is $1,000 at maturity.
- Let's assume that starting next year, interest rates start to increase at a rate of 1% per year (1.6% in 2021, 2.6% in 2022, etc.) and the yields of these bonds follow a similar upward trend.
- What will the prices of 10-year bonds be from 2021 to 2030?
- What will your rate of return be if you sell your bonds in 2023?
- Assume that interest rates do not change much, but the average inflation rate over the next 10 years is 2.5% per year.
- What will be your real rate of return if you hold the bonds until maturity?
- Do you still want to invest in these bonds? Why or why not?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date: