Consider a bond with a $1,000 face value, five years to
maturity, and $80 annual coupon...
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Consider a bond with a $1,000 face value, five years tomaturity, and $80 annual coupon interest payments. The bondcurrently sells at $1,000. The bond’s yield is expected to declineto 7% at the end of three years. Interest income is assumed to beinvested at 7.5%.
Calculate the bond’s price change over the 3-year holdingperiod.
Calculate the total value of the coupon interest payments plusthe interest on the coupon payments at the end of the 3-yearholding period.
Calculate the bond’s realized 3-year holding periodreturn.
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