calculate your expected total return over the two-year holding period.

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Calculation question:

You are planning to buy a corporate bond with a seven-year maturity that pays 7% coupon interest. The bond is priced at $108,500 per $100,000 par value. You expect to sell the bond in two years when a similar-risk free five-year bond is priced to yield 7.2% annually to maturity. Assuming you can invest all cash flows at an 8% annual rate (4% semiannually),

calculate your expected total return over the two-year holding period.

 

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