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solve Q2 in 40 mins thanks Question 2 (19 points): On 1.1.2022, Good Company Inc. issued a zero coupon, non-index linked (nominal), 4-year bond, with
solve Q2 in 40 mins thanks
Question 2 (19 points): On 1.1.2022, "Good Company Inc." issued a zero coupon, non-index linked (nominal), 4-year bond, with a face value of $100. Assume that the YTM on similar bonds in the market is 5%, and the expected annual inflation rate at the time of issuing was 3% a year. b. Suppose that two years later (on 1.1.24), the bond was trading for $95. It is known that at that time, the expected annual inflation rate was 2% a year. The following table presents data regarding the consumer price index at different points in time: What is the effective annual rate of return (nominal and real) for an investor who bought the bond at its issuance, and sold it on 1.1.2024? c. Consider an investor that bought the bond on 1.1.24. What will be his annual real effective rate of return if he holds the bond until maturity? Question 2 (19 points): On 1.1.2022, "Good Company Inc." issued a zero coupon, non-index linked (nominal), 4-year bond, with a face value of $100. Assume that the YTM on similar bonds in the market is 5%, and the expected annual inflation rate at the time of issuing was 3% a year. b. Suppose that two years later (on 1.1.24), the bond was trading for $95. It is known that at that time, the expected annual inflation rate was 2% a year. The following table presents data regarding the consumer price index at different points in time: What is the effective annual rate of return (nominal and real) for an investor who bought the bond at its issuance, and sold it on 1.1.2024? c. Consider an investor that bought the bond on 1.1.24. What will be his annual real effective rate of return if he holds the bond until maturityStep by Step Solution
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