Question
30 Year, 6% Coupon Bond Use the following information to answer the next two questions: Suppose you buy a 30-year, 6% coupon bond when its
30 Year, 6% Coupon Bond
Use the following information to answer the next two questions: Suppose you buy a 30-year, 6% coupon bond when its YTM is 6.5% and you plan to hold it for 3 years. You forecast that the YTM will be 7% when it is sold and the reinvestment rate on coupon payment will be 4%. Assume that bond pays annual coupon payment.
How much do you pay to buy the bond and how much can you sell it for after 3 years?
| $921.80 and $889.39 |
| $934.71 and $880.13 |
| $988.10 and $884.65 |
| $1,020.12 and $899.55 |
What is the total value of your coupon payments at the end of 3 years with reinvestment rate of 5%? And what is your realized return over 3 years of investment?
| $210,85 and 4.25% |
| $180.00 and 2.89% |
| $187.30 and 4.53% |
| $187.30 and 5.31% |
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