(a) Purchase a 10-year bond that pays a 6% coupon on a monthly basis with a 4.8% yield to maturity. Answer the questions below and assume $100 face for prices and coupons. Show all your work for full credit.
What is the periodic coupon, C:
What is the periodic yield, y:
What is the number of payments T:
What is the price, P:
(b) You hold the bond for 5 years. During the holding period you reinvest the coupons at 3.6%.
What is the future value of your coupons and reinvestment interest?
Coupons and interest:
(c) At the end of 5 years you sell the bond at a 6% YTM. What is the sales price?
(d) What is the total return of this investment?