Nellie purchased $1,000,000 of bonds issued by a foreign country ten years ago. The coupon on the
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Question:
Nellie purchased $1,000,000 of bonds issued by a foreign country ten years ago. The coupon on the bond was 7.5% paid semi-annually. The foreign country has made all bond payments for 10 years. The country now has dire financial problems and a hedge fund has offered to buy back the bonds for 50% of the face value. Ignore any fees and taxes concerning the bonds. | |
a | What effective annual rate would Nellie have earned if the Bonds sold for their face value today at the end of ten years (assume that the last coupon was received)? |
b | What effective annual rate would Nellie have earned if 50% of the bond's face value was paid to Nellie today at the end of ten years (assume that the last coupon was received)? |
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