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Please do the following using excel A 5 -Year fixed interest bond pays a coupon of 4% p.a., yearly in arrears and is redeemed at
Please do the following using excel
A 5 -Year fixed interest bond pays a coupon of 4% p.a., yearly in arrears and is redeemed at par. An investor purchases the 100 nominal of the bond at 90 . (1) Compute the effective annual rate of the bond. (2) If the value of the inflation index (I) over 5 years has the following behavior: I(t=1)=104,I(t=2)=108.16,I(t=3)=112.49, I(t=4)=116.99 and I(t=5)=121.67, calculate the annual real rate of the bond. (3) What is the new value of the annual real rate of the bond if the inflation rate is halved. (4) Compute the accumulated value at T=3Y of the cash flows collected from the bond and reinvested at the effective annual rate of the bond estimated at point (1)Step by Step Solution
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