Derive the probability distribution of the one year hpr

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Reference no: EM131327531

Derive the probability distribution of the one-year HPR on a 30-year U.S. Treasury bond with an 8% coupon if it is currently selling at par and the rob ability distribution of its yield to maturity a year from now is as follows:

State of the Economy	Probability	YTM
Boom	.20	11.0%
Normal growth	.50	8.0
Recession	.30	7.0

For simplicity, assume the entire 8% coupon is paid at the end of the year rather than every six months.

Reference no: EM131327531

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