You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%. Find the realized compound yield before taxes for a two-year holding period, assuming that i) the investor, who bought the newly issued bond at the 8% yield to maturity, will sell the bond in two years after the purchase, ii) the bond’s yield-to-maturity is 7% at the end of the second year when it is sold, and iii) the coupon at the end of the first year is reinvested for one year at a 4% interest rate. Ignore taxes.
You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%. Find the realized compound yield before taxes for a two-year holding period, assuming that i) the investor, who bought the newly issued bond at the 8% yield to maturity, will sell the bond in two years after the purchase, ii) the bond’s yield-to-maturity is 7% at the end of the second year when it is sold, and iii) the coupon at the end of the first year is reinvested for one year at a 4% interest rate. Ignore taxes.
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
Problem 1PS
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You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%.
Find the realized compound yield before taxes for a two-year holding period, assuming that i) the investor, who bought the newly issued bond at the 8% yield to maturity, will sell the bond in two years after the purchase, ii) the bond’s yield-to-maturity is 7% at the end of the second year when it is sold, and iii) the coupon at the end of the first year is reinvested for one year at a 4% interest rate. Ignore taxes.
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