1. Assume that you purchase a 3-year bond, with a 8% coupon, and a yield of 10%. after you purchase the bond, one-year interest rates are as follow, year 1 = 10%, year 2 = 8%, year 3 = 6% (these are the reinvestment rates). calculate the realized yield if you hold the bond to maturity. interest is paid annually. No Par value provided, but best to assume it is $1000.
a. 9.76% b. 8.37% c. 10.67% d. 14.0% e. 7.28%
2. Changes in a bonds cash flows associated with changes in yield would be reflected in the bond’s
a. Macaulay Duration b. Effective Duration c. Modified Duration