Coupon Assignment | Professional Writing

Suppose that today you buy a coupon bond with an annual coupon payment of $90. The bond costs you $1,000 and its face is $1,000. The bond has 12 years to maturity.

1) What is the coupon rate? What is the yield to maturity on the bond at the time of purchase?

2) Consider that 3 years from now, the yield to maturity becomes 7 percent and you decide to sell. What is the price of the bond at which you can sell it for? (Round you answer to 2 decimal places.)

3) Define the holding period yield as the realized return if you actually sell the bond before it matures. Let r* be the holding period yield, T be the number of holding periods, C be the coupon payment and, P₀ and P_T be the price at the beginning and the end of the holding period, then it follows that P₀ = {C[1-1/(1+r*)^T]}/r* + P_T[1/(1+r*)^T]. Based on the assumptions in question 2), what is your holding period yield? (Round your answer to 2 decimal places.)C

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