An investor purchases a 10-year, 5.9% 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 by 1.5%. The investor sells the bond after 7 years. Assume that interest rates remain unchanged at 5.9+1.5% over the 7-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor’s 7-year horizon yield?
An investor purchases a 10-year, 5.9% 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 by 1.5%. The investor sells the bond after 7 years. Assume that interest rates remain unchanged at 5.9+1.5% over the 7-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor’s 7-year horizon yield?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 13P
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An investor purchases a 10-year, 5.9% 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 by 1.5%. The investor sells the bond after 7 years. Assume that interest rates remain unchanged at 5.9+1.5% over the 7-year holding period.
Assuming that all coupons are reinvested over the holding period, what is the investor’s 7-year horizon yield?
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