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Suppose that a company issues a bond with a coupon of 4% paid annually. The bond has a maturity of 30 years and a yield to maturity of 7%. An investor purchased this bond at a fair price and holds the bond for 1 year. If the yield to maturity at the end

Suppose that a company issues a bond with a coupon of 4% paid annually. The bond has a maturity of 30 years and a yield to maturity of 7%. An investor purchased this bond at a fair price and holds the bond for 1 year.

If the yield to maturity at the end of bond’s life changes to 8%, what will be the rate of return that this investor is going to earn at the end of year 1?

The fair price of the bond is simply the present value today of all future cash flows from an investment in a bond


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Suppose that a company issues a bond with a coupon of 4% paid annually. The bond has a maturity of 30 years and a yield to maturity of 7%. An investor purchased this bond at a fair price and holds the bond for 1 year. If the yield to maturity at the end
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