1) Suppose you purchase a 10-year bond with 6.4%annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.4% when you purchased and sold the bond,
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
b. What is the annual rate of return of your investment?
2) Suppose you purchase a 30?-year, ?zero-coupon bond with a yield to maturity of 5.7 % You hold the bond for five years before selling it.
i. If the? bond's yield to maturity is 5.7 % when you sell? it, what is the annualized rate of return of your? investment?
ii. If the? bond's yield to maturity is 6.7% when you sell? it, what is the annualized rate of return of your? investment?
iii. If the? bond's yield to maturity is 4.7% when you sell? it, what is the annualized rate of return of your? investment?
iv. Even if a bond has no chance of? default, is your investment risk free if you plan to sell it before it? matures? Explain. ?..Select from answers below..
A.If there is no chance of? default, the investment is risk free no matter when you sell it.
B.Even without? default, if you sell prior to? maturity, you are exposed to risk that the YTM may change.
C.Even though the yield to maturity? changes, if there is no chance of? default, then the bond is risk free.
D.There is always a chance of? default, so every bond has risk.