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3.- Mr. Musk is issuing today 3 percent annual coupon bond for 1000. The bond has 10 years to maturity.
You are a conservative investor, and believe that bonds are less risky than stocks, so you decide to invest.
What rate of return do you expect to earn on your investment?
Two years from now, the YTM on your bond has increased by 5 percent, and you decide to sell.
At what price will you be able to sell your bond?
What is the Holding Period Yield on your investment?
Compare this yield to the YTM when you first bought the bond and explain the difference. Do you still think that bonds are less risky than stocks?
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