Consider the following par bond (ie coupon rate=yield): Year: 10 and 20 years . Yld 1.50% and

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Consider the following par bond (ie coupon rate=yield): Year: 10 and 20 years . Yld 1.50% and 2.0%

Q1a. based on linear interpolation, what is the expected yield for a 20-year bond ONE year later, assuming the yield curve shape stays the same?

Q1b. how much should the 20y bond be priced 1 year later (as a 19-year bond)?

Q1c. if you hold the 20Y for 1 year, what is your total return from the investment assuming the yield curve does not change?

Hint: your total return comes from coupon collection as well as price appreciation or depreciation.

Related Book For answer-question

Bank Management and Financial Services

ISBN: 978-0078034671

9th edition

Authors: Peter Rose, Sylvia Hudgins

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Posted Date: Jun 24, 2022 06:23 AM

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Consider the following par bond (ie coupon rate=yield): Year: 10 and 20 years . Yld 1.50% and

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