Suppose you buy a 50-year, 5.5 coupon bond when its YTM is 6.67% and you plan to hold it for 10 years. You forecast that the YTM will be 7.5% when it is sold and the reinvestment rate on coupon payment will be 4.5%. What is your realized return over 10 years of investment? Assume that bond pays semi-annual coupon payment.
How much do you pay for the bond?
How much can you sell you bond after 10 years at the YTM of 7.5%?
What is the total value of your coupon payments at the end of 10 years with reinvestment rate of 4.5%?
What is your realized return over 10-year period?