1) Suppose you purchase a 30?-year, ?zero-coupon bond with a yield to maturity of 6.5 % You hold the bond for five years before selling it.
i. If the? bond's yield to maturity is 6.5 % when you sell? it, what is the annualized rate of return of your? investment?
ii. If the? bond's yield to maturity is 7.5 % when you sell? it, what is the annualized rate of return of your? investment?
iii. If the? bond's yield to maturity is 5.5 % 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 the best choice? below.)
the best choice? below.)
A.Even without? default, if you sell prior to? maturity, you are exposed to risk that the YTM may change.
B.There is always a chance of? default, so every bond has risk.
C.Even though the yield to maturity? changes, if there is no chance of? default, then the bond is risk free.
D.If there is no chance of? default, the investment is risk free no matter when you sell it.
V) Suppose a? five-year, $1,000 bond with annual coupons has a price of $904.85 and a yield to maturity of 6.4%. What is the? bond's coupon? rate?