A government bond matures in 4 years, makes annual coupon payments of 4.0% and offers a yield of 2.0% annually compounded.
a. Suppose that one year later the bond still yields 2.0%. What return has the bondholder earned over the 12-month period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Rate of return ? %
b. Now suppose that the bond yields 1.0% at the end of the year. What return did the bondholder earn in this case? (Do not round intermediate calculations. Enter your answer as a percent rounded 2 decimal places.)
Rate of return ? %