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Could the helper draw the timeline for me on these questions? You buy a 3-year 7% coupon-paying bond at par (that is, the price is
Could the helper draw the timeline for me on these questions?
You buy a 3-year 7% coupon-paying bond at par (that is, the price is $1000 ). You hold the bond for 2 years, reinvesting the coupons at 8%. You re-sell the bond after 2 years (after receiving the second coupon), when the bond yield to maturity is equal to 5%. 3.a What is the selling price of the bond? 3.b What is the future value (or accumulated value) of the coupon payments in year 2 ? 3.c What is the annualized holding-period return of your investment? 3.d Explain the relationship between the yield to maturity and the annualized holding period return you calculated in question 3.c (is it smaller/larger/equal and why?)Step by Step Solution
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