Solved by a verified expert :The Yield to Maturity (YTM) on a bond is the interest rate
you earn onyour investment if interest rates don’t change. If you actually sell the bond before it
matures, your realized return is known as the holding period yield (HPY).
a. Suppose that
today you buy a 5.6% annual coupon bond for $930. The bond has 10years to
maturity. What rate of return do you expect to earn on your investment?
b. Two years from
now, the YTM on your bond has declined by 1%, and you decide to sell. What
price will your bond sell for? What is the HPY on your investment? Compare this
yiels to the YTM when you first bought the bond. Why are they different?
Rubric:
PLEASE
1. Use wording,
grammar, spelling and punctuation accurately and correctly (including APA
format). Execution is excellent.
2. Use logical
sequencing including introduction, transitions between paragraphs, and
conclusion to develop main idea(s)
3. Demonstrate an
excellent understanding of how toevaluate bonds and how how interest rates
affect bonds. Address all of the components.
4. Explainbond
investment strategies toachieve organizational goals.
5. Demonstrate an
excellent ability to understand,comprehend, and interpretinvestments
strategies/ portfolio management of bonds.
