1. How much would an investor pay to purchase a bond today, which is redeemable in four years for a nominal or face value of $100 and pays an annual coupon of 5% on the nominal value?

The required rate of return (or yield) for a bond is this risk class is 4%.

2. A bond paying a coupon of 7% is redeemable in five years at nominal value ($100) and is currently trading at $106.6 Estimate its yield (required rate of return)
3. Kate invests k5000 in savings account that pays interest monthly at nominal rate of 4.2%.

1. What is the balance of the account at the end of 3 years?
2. What is the AER (Annual Equivalent rate) for Karens investment?

Interest rates, Bond yields and Duration