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Gnoma [55]
3 years ago
15

Three years ago, Joe bought a 5-year, 10% coupon paid semiannually bond for $1000. Currently, with interest rates having risen s

harply, the bond is selling for $800 and you decide to sell it off. If you had re-invested the semi-annual coupons as you received them, what would your realized yield be over the 3-year holding period? Round to two decimal places.
Business
1 answer:
ludmilkaskok [199]3 years ago
3 0

Answer:

3.63%

Explanation:

Semiannual coupon payment

= $100 ÷ 2 = $50[($1,000 × 10%) ÷ 2]

The total number of compounding period = 2periods per year × 3 years = 6 periods.

By entering the following data on a financial calculator, rate is calculated as 1.81%.

Semiannual yield = 1.81%

Annual yield = 1.81% ×2 = 3.63%

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