Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with...
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Accounting
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 3.5% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows: (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.)
| Economy | Probability | YTM | Price | Capital Gain | Coupon Interest | HPR | |
| Boom | 0.25 | 12.0 | % | $ | $ | $ | % |
| Normal Growth | 0.40 | 10.0 | % | $ | $ | $ | % |
| Recession | 0.35 | 9.0 | % | $ | $ | $ | % |
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