Question
An investor purchases a $10 million face amount of a corporate bond with remaining maturity of 10 years for 99 1/2 (no accrued interest). The
An investor purchases a $10 million face amount of a corporate bond with remaining maturity of 10 years for 99 1/2 (no accrued interest). The coupon is5%. The investor can invest cash at 2% annum, compounded semi-annually. The investor expects to sell the corporate bond in 5 years when yields are4.50%.(a) What is the dollar amount of the purchase price of the corporate bond?(b) What is the interest payment each period? How many periods until the bond is sold?(c) What is the expected selling price of the bond?(d) What are the proceeds of the sale?(e) What is the future value of the coupon payments and reinvestment earnings at the time of the bond sale?(f) What is the total cash from the bond sale, coupon payments and reinvestment earnings at the time of the bond sale?(g) What is the total annualized rate of return, based on a semi-annual bond equivalent?
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