Question
Suppose that you have a bond with a $1,000 par value that matures in 2 years and is currently selling at par, meaning that the
Suppose that you have a bond with a $1,000 par value that matures in 2 years and is currently selling at par, meaning that the coupon rate and the YTM are the same. Suppose that the annual coupon rate (and annual YTM) is 6 percent. Suppose that you purchase the bond today and you reinvest the coupon payments at a semi-annual rate of 4 percent until it matures.
a. What is the terminal value of the reinvested coupon payments?
b. What is the effective semi-annual yield-to-maturity (YTM)?
c. What is the effective annual yield-to-maturity (YTM)?
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The Investors Guidebook To Fixed Income Investments
Authors: Stuart R. Veale
1st Edition
0735205310, 978-0735205314
