Assume That You Purchase a 10-Year, $1,000 Par Value Bond

Multiple Choice

Assume that you purchase a 10-year, $1,000 par value bond, with a 12 percent coupon and a yield of 9 percent. Immediately after you purchase the bond, yields fall to 8 percent and remain at that level to maturity. Calculate the realized horizon yield, if you hold the bond for five years and then sell. Interest is paid annually.

A) 16.25 percent
B) 12.15 percent
C) 7.75 percent
D) 10.05 percent
E) 9.34 percent