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Bond returns. A six-year government bond makes annual coupon payments of 5% and offers a...

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Finance

Bond returns.

A six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period? Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case?

Duration.

True or false? Explain. a. Longer-maturity bonds necessarily have longer durations. b. The longer a bonds duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility. d. If interest rates rise, bond durations rise also.

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