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Your investment horizon is 1 year (i.e. you will need the money 1 year from now). Assume you are considering buying a 2-year zero coupon bond (par value 1000) or a 5-year coupon bond with coupon rate 4% paid once a year and par 1000. Assume that the interest rate today is 3%.

a. What is the HPR on each of the two bonds if the interest rate after one year is 4%?

b. What is the HPR on each of the two bonds if the interest rate after one year is 2%?

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Financial Management, Finance

Category:- Financial Management
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