If the bond's yield to maturity is 6.3 % when you sell it, what is the annualized rate of return on your investment?

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1. Suppose you purchase a 30 -year, zero-coupon bond with a yield to maturity of 6.3 %. You hold the bond for five years before selling it. a. If the bond’s yield to maturity is 6.3 % when you sell it, what is the annualized rate of return on your investment? b. If the bond’s yield to maturity is 7.3 % when you sell it, what is the annualized rate of return on your investment? c. If the bond’s yield to maturity is 5.3 % when you sell it, what is the annualized rate of return on your investment? d. Even if a bond has no chance of default, is your investment RISK-free if you plan to sell it before it matures? Explain

2. A BBB-rated corporate bond has a yield to maturity of 7.8 %. A U.S. Treasury security has a yield to maturity of 6.4 %. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 6.5 % and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?

 

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