1. You bought a bond five years ago for $10,000. The bond is now selling for $10,500. It also paid $400 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond
2. For the bond in question 1, you expect to hold the bond for five more years, then sell it for $10,250. If the bond is expected to continue paying $400 per year over the next five years, what is the expected rate of return on the bond over the next five years?
3. Why is the expected rate of return in Question 2 less than the realized rate of return in Question 1?