A). Your Aunt Maude has found a $1000 par, 13.5% annual coupon bond that matures in 20
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Question:
A). Your Aunt Maude has found a $1000 par, 13.5% annual coupon bond that matures in 20 years which is currently selling for $1,298. If she buys the bond today, what is her expected rate of return? (the bond's YTM).
B). Using your calculated expected rate of return from part A, will the expected price on Aunt Maude's bond be higher or lower in one year? Support your answer briefly. (would N=1 or 19?)
C) If Maude is unable to reinvest at the expected rate of return (YTM), but she can reinvest 4% annually, what will her realized rate of return be on the bond investment?
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