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Suppose you purchase a 30-year Government of Canada bond with a 5% annual coupon, initially...

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Finance

Suppose you purchase a 30-year Government of Canada bond with a 5% annual coupon, initially trading at par. In 10 years time, the bonds yield to maturity has risen to 7% (EAR).

a. If you sell the bond now, what IRR will you have earned on your investment in the bond?

b. If instead you hold the bond to maturity, what IRR will you earn on your investment in the bond?

c. Is comparing the IRRs in part (a) versus part (b) a useful way to evaluate the decision to sell the bond? Explain.

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