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28 Sep 2019
Bond 1: 30-year bond with 7% coupon rate (annual) and current price = $867.42.
Bond 2: 20-year bond with 6.5% coupon rate (annual) and current price = $879.50.
A bond market analyst forecasts that in 5 years
ï§ 25-year bonds will sell at YTMs of 8%, and
ï§ 15-year bonds will set at YTMs of 7.5%
ï§ Because the yield curve is upward sloping, the analyst expects that coupons will be invested in short-term securities at a rate of 6%
b. What is the expected return of the 20-year bond?
Bond 1: 30-year bond with 7% coupon rate (annual) and current price = $867.42.
Bond 2: 20-year bond with 6.5% coupon rate (annual) and current price = $879.50.
A bond market analyst forecasts that in 5 years
ï§ 25-year bonds will sell at YTMs of 8%, and
ï§ 15-year bonds will set at YTMs of 7.5%
ï§ Because the yield curve is upward sloping, the analyst expects that coupons will be invested in short-term securities at a rate of 6%
b. What is the expected return of the 20-year bond?
Reid WolffLv2
28 Sep 2019
