1. Colwyn buys a 10% corporate bond with a current yield of 6%. When he sells the bond one year later, the current yield on the bond is 7%. How much did Col make on this investment?
2. In early January 2004, you purchased $30 000 worth of some high-grade corporate bonds. The bonds carried a coupon of 8.1% and mature in 2018. You paid 94.125 when you bought the bonds. Over the five-year period from 2004 through 2008, the bonds were priced in the market as follows:
Coupon payments were made on schedule throughout the five-year period.
a. Find the annual holding period returns for 2004 through 2008. (See Chapter 4, Equation 4.4 on page 97, for the HPR formula.)
b. Use the return information in Table 10.1 to evaluate the investment performance of this bond. How do you think it stacks up against the market? Explain.