Log In Start studying!
Answers without the blur. Sign up and see all textbooks for free! Illustration


Essentials Of Investments
Found in: Page 362
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Answers without the blur.

Just sign up for free and you're in.


Short Answer

Currently, the term structure is as follows: One-year bonds yield 7%, two-year bonds yield 8%, three-year bonds and greater maturity bonds all yield 9%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 8%, once a year. Which bond should you buy if you strongly believe that at year-end the yield curve will be flat at 9%?


Three year maturity bond

See the step by step solution

Step by Step Solution

Step by Step Solution Step 1: Calculation of holding period return

Step 2: Explanation on choice between one year, two year and three year bond

From the table above, it is apparent that the three year bond would give 9% holding period return which is the highest amongst all. Hence one should buy this.

Most popular questions for Business-studies Textbooks


Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.