Lets consider an investment strategy over a 10-year time-frame. The ini- tial return for the first 6 years is achieved through a bond that pays a 5% annual coupon. At the time of the investment, this bond is priced at 95 (with 100 as reference nominal of the investement). After 6 years, the ac- cumulated capital from the investment is reinvested in a 2-year zero-coupon bond, which is quoted at par and guarantees the redemption of the capital at maturity (i.e. after 2 years) with a 5% premium. For the remaining 2 years, the capital is reinvested in another 2-year bond with a coupon rate of 4% p.a. payed annually. This bond has a price of 101.9 at the time of the investment, which is 8 years after the start of the investment strategy.

(a) Calculate the effective rate for all three bonds.

(b) Determine the accumulated value at t = 10 years when you invest 300 EUR in three installments: 100 EUR at time t = 0, 100 EUR at t = 6, and 100 EUR at t = 8 years.

(c) If every time you invest in a bond, it is quoted at par (i.e., 100), what is the effective rate of the fund?