Consider a 10-year bond, with face value 1000, coupon rate 6% (annual coupon payment), selling at par. Suppose the coupons can be reinvested at 5% per year. Calculate the realized compound return. Suppose on the maturity date, the company only returns 60% of the par value to the investor (all coupons are paid in full). Recalculate the realized compound return.
Consider a 10-year bond, with face value 1000, coupon rate 6% (annual coupon payment), selling at par. Suppose the coupons can be reinvested at 5% per year. Calculate the realized compound return. Suppose on the maturity date, the company only returns 60% of the par value to the investor (all coupons are paid in full). Recalculate the realized compound return.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 2P
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Consider a 10-year bond, with face value 1000, coupon rate 6% (annual coupon payment), selling at par. Suppose the coupons can be reinvested at 5% per year.
- Calculate the realized compound return.
- Suppose on the maturity date, the company only returns 60% of the par value to the investor (all coupons are paid in full). Recalculate the realized compound return.
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