Question
Bonds of RCY Corporation with a face value of $1000 sells for $960, mature in 5 years, and have a 7% coupon rate paid semiannually.
Bonds of RCY Corporation with a face value of $1000 sells for $960, mature in 5 years, and have a 7% coupon rate paid semiannually.
a) Calculate the investor's RCY by assuming the following: Bond sold to yield at 7% and the end of the 3-year holding period. Reinvestment rate 6% APR during this holding period. PS: state what assumption(s) you need to make in calculating this RCY.
b) Briefly explain in the space below why there are potentially two answers to the RCY calculation?
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Entrepreneurial Finance
Authors: Chris LeachJ LeachRonald Melicher
3rd Edition
0324561253, 9780324561258
