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An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. Aft the bond is purchased and before the first coupon is received, interest rates increase to 8%. The invest sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period. Assuming that all coupons are reinvested over the holding period, the investor's five-year horizon yiel closest to: 1. 5.66% 2.6.62%

An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. Aft the bond is purchased and before the first coupon is received, interest rates increase to 8%. The invest sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period. Assuming that all coupons are reinvested over the holding period, the investor's five-year horizon yiel closest to: 1. 5.66% 2.6.62%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period. Assuming that all coupons are reinvested over the holding period, the investor's five-year horizon yield is closest to: 1. 5.66% 2. 6.62% 3. 7.12%
Transcribed Image Text:An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period. Assuming that all coupons are reinvested over the holding period, the investor's five-year horizon yield is closest to: 1. 5.66% 2. 6.62% 3. 7.12%
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