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Part B: At t = 0 , you purchase a four - year, 5 percent coupon bond ( paid annually ) that is priced tc

Part B:
At t=0, you purchase a four-year, 5 percent coupon bond (paid annually) that is priced tc
yield 6 percent continuously compounded (YTM =6% continuously compounded). The
face value of the bond is $1,000. The bond issuer is the U.S. government (no liquidity
risk).
You are also given that your holding period (investment horizon) equals to 3.70 years
years).
Suppose that the market interest rate changes to 5.50 percent continuously compoundec
during the first year of your purchase (within year 1), and it remains at that level for the
remaining life of the bond.
Assume that, the reinvestment rate for the first coupon payment is the new interest rate
that is,5.50 percent continuously compounded. In addition, you will reinvest the coupor
payments in a zero-coupon bond.
What is your continuously compounded Holding Period Return of your investment at the
end of your investment horizon (t=3.70) years?
(Round-off to four decimal places, to obtain as accurate answer as possible on Canvas.)
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