Calculate the expected rate of return for maturity bond

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A 30-year maturity bond has a 8% coupon rate, paid annually. It sells today for $1,037.42. A 20-year maturity bond has a 7.5% coupon rate, also paid annually. It sells today for $1,049.5. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 9% and that 15-year maturity bonds will sell at yields of 8.5%. Because the yield curve is upward-sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 7%.

a. Calculate the annual return for the 30-year maturity bond over the next five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected rate of return             %

b. What is the expected return of the 20-year bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected rate of return             %

Reference no: EM131578225

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