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investment finance – A 30-year maturity bond has a 9% coupon rate, paid annually.
investment finance – A 30-year maturity bond has a 9% coupon rate, paid annually.
| A 30-year maturity bond has a 9% coupon rate, paid annually. It sells today for $897.42. A 20-year maturity bond has a 8.5% coupon rate, also paid annually. It sells today for $909.5. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 10% and that 15-year maturity bonds will sell at yields of 9.5%. Because the yield curve is upward-sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 8%. |
| a-1. | Calculate the annual rate of return for the 30-year maturity bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Annual rate of return | % |
| a-2. | Calculate the annual rate of return for the 20-year maturity bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Annual rate of return | % |
| b. | Which bond offers the higher expected rate of return over the five-year period? | ||||
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