Problem:
A corporate bond having 31 years to maturity has a coupon rate of 5 percent. The bond is currently trading at a price that gives the bond a semiannually compounded yield (to maturity) of 4.5 percent.
Required:
Question 1: Assuming that at the end of one year the bond offers a yield to maturity of 5.5 percent, determine the return to holding the bond for one year. [Hint: Be sure to remember that at the end of one year the bond will have one less year remaining until maturity.]
Question 2: Assuming that the bond is priced to yield 5.0 percent at the end of the year, determine the return from holding the bond.
Note: Please provide equation and explain comprehensively and give step by step solution.