Assume That You Purchase a Three-Year, $1,000 Par Value Bond

Multiple Choice

Assume that you purchase a three-year, $1,000 par value bond, with an 8 percent coupon and a yield of 10 percent. After you purchase the bond, one-year interest rates are as follows: year 1 = 10 percent, year 2 = 8 percent, year 3 = 6 percent (these are the reinvestment rates) . Calculate the realized horizon yield if you hold the bond to maturity. Interest is paid annually.

A) 8.37 percent
B) 7.28 percent
C) 9.76 percent
D) 10.67 percent
E) 14.0 percent