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An investor purchases 8% coupon bond at 104.2 per 100 of par value. The coupon payments are reinvested at 7%. Refer the below given data
An investor purchases 8% coupon bond at 104.2 per 100 of par value. The coupon payments are reinvested at 7%. Refer the below given data to calculate the investor's return/horizon yield when the bond is held to maturity and when the bond is sold after 3 years \begin{tabular}{|c|c|c|c|} \hline \\ \hline \multicolumn{4}{|l|}{ Details fo the bond: } \\ \hline Face Value & 100 & & \\ \hline settlement date & 18/02/20 & & \\ \hline maturity date & 18/02/25 & & \\ \hline Annual coupon rate & 8.00% & & \\ \hline coupon frequency & Annual & & \\ \hline Bond Price (flat) & 104.2 & & \\ \hline maturity (t) in years & 5 & Formula Bar & \\ \hline Case 1: & Holding to Maturity & & \\ \hline Time remaining to maturity & Coupon payments & Reinvestment rate & Future value \\ \hline 4 & ? & 7.00% & ? \\ \hline 3 & ? & 7.00% & ? \\ \hline 2 & ? & 7.00% & ? \\ \hline 1 & ? & 7.00% & ? \\ \hline 0 & ? & 7.00% & ? \\ \hline \multicolumn{2}{|c|}{ Future value of coupons at t=5} & & ? \\ \hline Horizon Yield is & ? & & \\ \hline Case 2: & Selling before maturity & & \\ \hline \multicolumn{4}{|c|}{ after 3 years, when the bond is sold, the yield to maturity is =6.50%} \\ \hline time remaining to maturity & coupon payments & Reinvestment rate & Future value \\ \hline 2 & ? & 7.00% & ? \\ \hline 1 & ? & 7.00% & ? \\ \hline 0 & ? & & ? \\ \hline future value of coupons at t=3 & & & ? \\ \hline Time to maturity after 3 years & Cash flow & Yield to maturity & future value \\ \hline 1 & ? & 6.50% & ? \\ \hline 2 & ? & 6.50% & ? \\ \hline \multicolumn{2}{|c|}{ Present value of remaining coupons and future value at t=3} & & ? \\ \hline Horizon Yield & ?? & & \\ \hline \multicolumn{3}{|c|}{ The reinvestment rate changes (increases or decreases) compared to YTM because of } & \\ \hline \multicolumn{3}{|l|}{ Capital loss } & \\ \hline \multirow{2}{*}{\multicolumn{2}{|c|}{\begin{tabular}{l} Re investment income \\ All of the above \end{tabular}}} & & \\ \hline & & & \\ \hline \end{tabular}
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