What will be the expected rate ofreturn for the coming year

Reference no: EM13305965

Assume that you are an investor and are in the market forcorporate debt. You run across XYZ Corporation'sbonds which have a 20 year term a 7.5% coupon (interest paidsemi-annually) and were issued five years ago ( Sep 1^st.2005) at par. Over the last five years, interest rates havefluctuated substantially and the following table shows the requiredreturns for XYZ bonds for the last 5 years. In allcases assume that the coupons are not reinvested.

Date	Required Return
Sep 1^st.,2006	8.50%
Sep 1^st.,2007	6.75%
Sep 1^st.,2008	5.95%
Sep 1^st.,2009	6.35%
Sep 1^st.,2010	7.00%

(a) Calculate the annual rate of return for each of the last five years (Sep 1^st of each year) since the bonds wereissued.

(b) If the required return on thisbond a year from now, September 1^st., 2011, is expectedto remain the same at 7.00%, what will be the expected rate ofreturn for the coming year?

Reference no: EM13305965

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