Assume you are purchasing a new bond today which has a three-year maturity, a principal...
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Finance
Assume you are purchasing a new bond today which has a three-year maturity, a principal of $10,000, and a coupon rate of 5%. The current interest rate is 5%.
How much do you pay for the bond today?
After one year you decide you want to sell your bond. The interest rate is then 7%.
How much can you sell your bond for? $
What is your annual rate of return over your year of investment? %
Suppose you instead decide to sell your bond after two years, at which point the interest rate is 1%.
How much do you sell your bond for at that point in time? $
What is your average annual rate of return over your two year investment period? %
Suppose you instead decide to wait and hold your bond for the three full years until maturity.
What is your average annual rate of return over your three year investment period? %
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