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Samantha Loony-Warde, the investment manager of Golden Square Superannuation Management Fund wishes to invest funds for the next 10 years. She is comparing the following
Samantha Loony-Warde, the investment manager of Golden Square Superannuation Management Fund wishes to invest funds for the next 10 years. She is comparing the following two alternative types of bond investment: The Rabbit bond can be bought today for $79. It pays $15 coupon payments annually and $100 principal when it matures in 10 years' time. The Golden Dragon bond costs $20 today, and pays $100 when it matures in 10 years' time. It pays no coupon payments during its life, and is known as a zero-coupon bond. [Bear in mind that the pension fund wishes to invest for a 10-year term, as it does not need any cash inflow for its members until the end of Year 10.) Question 24-Suppose that the market rate of interest falls 10% per annum as soon as the fund invests in the bonds. What actual rate of return will the fund earn over the 10-year term for Rabbit Bond (answer to the nearest percentage)
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