Fixed Income - Fixed Income Section 2
- Option : C
- Explanation : In a buy-and-hold strategy if the market interest rates are lower in the future, the returns will decrease because the reinvestment income will decrease.
- Option : C
- Explanation : The investor reinvests the coupon interest payments at the same interest rate.
- Option : A
- Explanation : When a bond is held to maturity, there is no capital gain or loss because the carrying value of the bond at maturity is the same as the redemption amount.
- Option : B
- Explanation : A higher coupon rate means that more of the bond's value comes from coupon and less from the market interest rate.
- Option : B
- Explanation : Annualized holding period return is the IRR of the investment: N = 3, PV = -1,025.78, PMT = 90, FV = $1,000, CPT I/Y. I/Y = 8%. The total portion of coupon payments and reinvestment return 90(1.08)² + 90(1.08) + 90 = $292.18.
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