You bought a $4-$year $14\%$ semiannual coupon bond today. Par value of the bond is $$1,000.$ One year ago this bond had a maturity of $5$ years and sold for $$1,200.$ The required rate of return for this bond today is $2\%$ higher $($compounded semiannually$)$ than it was $1$ year ago.

$1.$ What is the price of the bond today?

$2.$ Suppose you hold the bond for $2$ years and then sell it at an interest rate of $10\%$ compounded semiannually. At what price will you sell the bond in two years?

$3.$ What would be the actual rate of return that you earned during the $2-$year holding period?

Answer rating: 100% (QA)

Here are the steps to solve this problem 1 Price of the bond today 1 year ago the 5year bond pric... View the full answer