You Have 5 Years Until You Need to Take Your

Essay

You have 5 years until you need to take your money out of your investments to make a planned expenditure. Right now bonds are promising an 8% return. You buy a 5-year duration bond. After you buy the bond, interest rates fall to 6% and stay there for the full five years. You reinvest the coupons and earn 6%. Will your realized return be more or less than the originally promised 8%? Explain.