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On January 1, 2001, Francesca purchased a newly issued 20 year bond, with a 5% coupon paid annually and a par of $2000. At the
On January 1, 2001, Francesca purchased a newly issued 20 year bond, with a 5% coupon paid annually and a par of $2000. At the time market rates were 7.6%. On Dec 31, 2006 rates suddenly dropped to 5%, and then again on Dec 31, 2009 rates dropped to 3%. At that time Francesca sold the bond. What was the realized rate of return over the life of this bond? In your answer, if you want possible partial credit, label these points carefully: A. What was the original purchase price? [1 mark] B. What was the price when Francesca sold it? [1 mark] C. What was the accumulated value of the coupons at the time of sale? [1 mark] D. What was Francesca's realized rate of return? [2 marks] (must be annualized, in %, with at least 3 decimal places)
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