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A bank has a planned 2-year investment horizon. It is considering investing $1,000 in a 2-year bond that pays 6% annually versus investing in a
A bank has a planned 2-year investment horizon. It is considering investing $1,000 in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%. What will be the realized compound yield if the bank invests in the 2-year security and holds it until maturity?
4.00% | ||
5.48% | ||
5.94% | ||
6.01% | ||
6.85% |
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