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QUESTION
If you buy a 5-year, 4% coupon, annual pay bond at a yield of 3.5%, hold it for 3 years while reinvesting the coupon payments at 2.
If you buy a 5-year, 4% coupon, annual pay bond at a yield of 3.5%, hold it for 3 years while reinvesting the coupon payments at 2.5%, and then sell it when the yield on the 2-year bond is 4%, your annual HPR is
- a. Less than 2.5%
- b. More than 3.5%
- c. Between 2.5% and 3.5%
- d. Not enough information to tell
