Question
In order to purchase a 1000 par value 10 year bond, yielding an annual nominal rate of 8% compounded semiannually, and paying semiannual coupons at
In order to purchase a 1000 par value 10 year bond, yielding an annual nominal rate of 8% compounded semiannually, and paying semiannual coupons at an annual nominal rate of 6%, Jake borrows money from a bank at an effective annual rate of 5%. He has to pay the amount he has borrowed plus interest in one single payment at the end of 10 years. Jake reinvests all coupon payments he receives in an account that gains interest at a nominal rate of 10% convertible semiannually. At the end of 10 years, how much remains from Jakes investment after he pays all he owes on the loan?
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