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

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

You Have Five Years Until You Need to Take Your