Questions 1. Reinvestment Risk of Bonds (20 points) Consider a semiannual bond with par value $100,000 and YTM 6.25%. Analyze the following two cases based on the following formula: (1 r)n C Interest on interest = (1) Assume the coupon rate of the bond is 6.5%. Calculate the interest-on-interest component of the bond assuming the bond's TTM is 5, 5.5, 6, longer the maturity of the bond, the higher the reinvestment risk measured by the interest-on-interest component". (10 points) (2) Assume the TTM of the bond is 10 years. Calculate the interest-on-interest component of the bond assuming the bond's coupon rate is 5%, 5.25%, 5.5%, Verify "the higher coupon rate of the bond, the higher the reinvestment risk measured by the interest-on-interest component". (10 points) ,15 years. Verify "the ,10% Questions 1. Reinvestment Risk of Bonds (20 points) Consider a semiannual bond with par value $100,000 and YTM 6.25%. Analyze the following two cases based on the following formula: (1 r)n C Interest on interest = (1) Assume the coupon rate of the bond is 6.5%. Calculate the interest-on-interest component of the bond assuming the bond's TTM is 5, 5.5, 6, longer the maturity of the bond, the higher the reinvestment risk measured by the interest-on-interest component". (10 points) (2) Assume the TTM of the bond is 10 years. Calculate the interest-on-interest component of the bond assuming the bond's coupon rate is 5%, 5.25%, 5.5%, Verify "the higher coupon rate of the bond, the higher the reinvestment risk measured by the interest-on-interest component". (10 points) ,15 years. Verify "the ,10%