Suppose you purchase a
3030-year,
zero-coupon bond with a yield to maturity of
6 %6%.
You hold the bond for
55
years before selling it.
a. If the bond's yield to maturity is
6 %6%
when you sell it, what is the internal rate of return of your investment?
b. If the bond's yield to maturity is
7 %7%
when you sell it, what is the internal rate of return of your investment?
c. If the bond's yield to maturity is
5 %5%
when you sell it, what is the internal rate of return of your investment?
d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.
Note:
Assume annual compounding.
Question content area bottom
Part 1
a. If the bond's yield to maturity is
6 %6%
when you sell it, what is the internal rate of return of your investment?