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Christa buys a 10-year 1400 par value 5% bond with semi-annual coupons. The price assumes a nominal yield of 5%, compounded semi-annually. As Christa receives
Christa buys a 10-year 1400 par value 5% bond with semi-annual coupons. The price assumes a nominal yield of 5%, compounded semi-annually.
As Christa receives each coupon payment, she immediately puts the money into an account earning interest at an annual effective rate of i.
At the end of 10 years, immediately after Christa receives the final coupon payment and the redemption value of the bond, Christa has earned an annual effective yield of 8% on her investment in the bond. Calculate i.
Answer choices: a) 16.9% b) 19.4%
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