Question
Kyan owns investment A and 1 bond B. The total value of his holdings is $6,600. Investment A is expected to pay annual cash flows
Kyan owns investment A and 1 bond B. The total value of his holdings is $6,600. Investment A is expected to pay annual cash flows to Kyan forever with the first annual cash flow expected in 1 year from today. Investment A has an expected return of 11.49 percent. The first cash flow is expected to be $515 in 1 year and annual cash flows are expected to increase by 2.21 percent each year forever. Bond B pays semi-annual coupons, matures in 9 years, has a face value of $1000, has a coupon rate of 12.66 percent, and pays its next coupon in 6 months. What is the yield-to-maturity for bond B? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.
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