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Please help me answer the 4.7 use the method of 4.6 I gave u. Thx! 4.6. Sara decides to buy a 6 percent, 10-year straight-coupon
Please help me answer the 4.7 use the method of 4.6 I gave u. Thx!
4.6. Sara decides to buy a 6 percent, 10-year straight-coupon bond for $100, which pays annual coupons of $6 at the end of each year. At the end of the first year, the bond is trading at $115. At the end of the second year, the bond trades at $100. a) What is Sara's return over the first year? r 1= P1+ CP 0 115+ 6100 = =0.21 r 1=21.00 P0 100 b) What is Sara's return over the second year? r 2= P2+ CP 1 100+6115 = =0.0783 r 1=7.83 P1 115 c) What is the average return per year for the two-year period? Use the arithmetic average. Average return= r 1+r 2 21 7.83 = =6.59 2 2 4.7. Saras portfolio consists of $10,000 in face value of the bonds described in exercise 4.6 and an $8,000 bank CD that earns 3.5 percent per year for the first year and 3.0 percent the second year. Calculate a, b, and c as in exercise 4.6Step by Step Solution
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