Yield to maturity on bond greater or less than current yield

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Reference no: EM131844308

Suppose that on January 1, 2016, you purchased a bond with the following characteristics

Face value: $1,000 (3 points)

Maturity date: January 1, 2018

Current yield: 7.5%

Price: $850 All underlying work must be shown

a. What was the coupon payment on this bond?

b. What was the coupon rate?

c. Is the yield to maturity on this bond greater or less than current yield? Why? Explain

d. If you sold the bond on January 1, 2017, while market interest rates were 7%, what was your holding period rate of return from this bond?

e. If inflation rate in January 2017 was 1.7%, what was your real return form holding the bond one year?

f. If the bond you sold on January 1, 2017 were longer maturity, how it would your holding period return rate be affected?

g .Suppose that instead selling the bond after one year, you hold the bond until its maturity. What would be your annual return from this bond?

Reference no: EM131844308

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