Investing in Bonds
The price of an annual paid 7% coupon bond with a 30-year maturity = $867.42
The price of an annual paid 6.5% coupon bond with a 20-year maturity = $879.50
It is forecasted that in 5 years, 25-year maturity bonds will sell at yields to maturity of 8% and 15-year maturity bonds will sell at yields of 7.5%.
Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 6%.
Which bond offers the highest expected rate of return over the five-year period?
© BrainMass Inc. brainmass.com March 4, 2021, 5:55 pm ad1c9bdddfhttps://brainmass.com/business/bond-valuation/investing-bonds-17934
Solution Summary
The solution calculates the highest expected rate of return over the five-year period for two bonds
$2.49