A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000. Its yield to maturity is 10%. You expect that interest rates will decline over the upcoming year and that the yield to maturity on this bond will be only 8% a year from now. Using horizon analysis, the return you expect to earn by holding this bond over the upcoming year is ________.

Question

Quizplus · Accepted Answer

Calculator entries for the price today are N = 20, I/Y = 10, PMT = 90, FV = 1,000, CPT PV 11eaaae8_8b57_e833_a4b8_07a143f09210_TB6474_11 −914.86
calculator entries for the price in 1 year are N = 19, I/Y = 8, PMT = 90, FV = 1,000, CPT PV 11eaaae8_8b58_0f44_a4b8_81a7f42e8dd4_TB6474_11 −1,096.04
Return = 11eaaae8_8b58_0f45_a4b8_558be99eb967_TB6474_11 = 0.2964

A 20-Year Maturity Bond Pays Interest of $90 Once Per