A six-year government bond makes annual coupon payments of 5 per cent and offers a yield of 3 per cent annaully compounded. suppose that one year later the bond still yield of 3 per cent. what return has the bondholder earned over the 12-month period? Now suppose that the bond yields 2 per cent at the end of the year. what return would be the bondholder earn in this case?
P0=110.8344 (3% yield)
P1=109.1594 (3% yield)
Bond Return (P1-P0)/P0 (110.8344-109.1594)/109.1594=1.5345%
P0=116.8043 (2% yield)
P1=114.1494 (2% yield)
Bond Return (P1-P0)/P0 2.3339 %
I am right?
heavenkid