Sam purchased a 30-year, zero-coupon bond with a yield to maturity (YTM) of

8%.

After holding it for 5 years, he sold it.

(Note:

Assume annual compounding.)

a. Assume the bond's YTM is8%when he sells it, what is the IRR of his investment?

b. Assume the bond's YTM is9%when he sells it, what is the IRR of his investment?

c. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.

Answer rating: 100% (QA)

a To calculate the internal rate of return IRR of Sams investment we need to find the discount rate that equates the present value of the bonds purcha... View the full answer