Suppose you purchase a 30 -year, zero-coupon bond with a yield to maturity of 6.2 %. You hold the bond for five years before selling it.
a. If the bond's yield to maturity is 6.2 % when you sell it, what is the annualized rate of return of your investment? The annualized rate of return of your investment is ____ %. (Round to two decimal places.)
b. If the bond's yield to maturity is 7.2 % when you sell it, what is the annualized rate of return of your investment? The annualized rate of return of your investment is ____ %. (Round to two decimal places.)
c. If the bond's yield to maturity is 5.2 % when you sell it, what is the annualized rate of return of your investment? Then the annualized rate of return of your investment is ____ %. (Round to two decimal places.)
d. 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 the best choice below.) the best choice below.)
A. There is always a chance of default, so every bond has risk. B. If there is no chance of default, the investment is risk free no matter when you sell it. C. Even though the yield to maturity changes, if there is no chance of default, then the bond is risk free. D. Even without default, if you sell prior to maturity, you are exposed to risk that the YTM may change.