Today is t = 0. You have just bought a five-year zero-coupon Treasury bond with $1,000 face value. You paid $920.
(a) What is the annually compounded yield to maturity on the bond?
(b) Suppose that yields at all maturities increase to 2% immediately after you have purchased the bond. Calculate the annualized holding period return if you sell the bond one year after you have purchased it, at t = 1.
(c) Suppose instead that you did not sell the bond at t = 1 and held it to maturity. What is the annualized holding period return for the five year investment?
