4.6. Sara decides to buy a 6 percent, 10-year straightcoupon bond for $100, which pays annual coupons

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4.6. Sara decides to buy a 6 percent, 10-year straightcoupon bond for $100, which pays annual coupons of $6 at the end of each year. At the end of the first year, the bond is trading at $115. At the end of the second year, the bond trades at $100.

a. What is Sara’s return over the first year?

b. What is Sara’s return over the second year?

c. What is the average return per year for the twoyear period? Use the arithmetic average.

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Financial Markets And Corporate Strategy

ISBN: 9780071157612

2nd Edition

Authors: Mark Grinblatt, Sheridan Titman

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