Question: Using the information in Table 7.1, suppose you buy a 3-year par coupon bond and hold it for 2 years, after which time you sell

Using the information in Table 7.1, suppose you buy a 3-year par coupon bond and hold it for 2 years, after which time you sell it. Assume that interest rates are certain not to change and that you reinvest the coupon received in year 1 at the 1-year rate prevailing at the time you receive the coupon. Verify that the 2-year return on this investment is 6.5%. Explain.

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