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a . For the Zero Coupon Bond 2 above that has a $ 1 , 0 0 0 maturity value and 5 years to maturity,
a For the Zero Coupon Bond above that has a $ maturity value and years to maturity, what will be your annual compound yield for your year holding period if you hold the bond to maturity, receiving the $ maturity value at the end of Year
Hint Recall: Annual Compound Yield for a Zero Coupon Bond
Maturity Value Bonds Pricen
Annual Compound Yield for Bond at End of Year
b Suppose for the Coupon Bond above that has a fixed annual coupon rate, $ maturity value and years to maturity, rates go down to r right after you purchase the bond, so all the coupon payments have to be reinvested at the new rate r of What will be your annual compound yield ACY if you hold the bond to maturity.
Hint: Recall FV of Bond Coupons Reinvested for years Coupon Payment FVIFA r
Where: FVIFA rnr
ACY FV of Coupons Maturity ValueBonds Price You Paidn where n years.
Annual Compound Yield for Bond at the End of Year
c Explain why you did not receive your desired annual compound yield for Bond but received your desired ACY for Bond
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