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Suppose you invest $1,000 in an 8% annual coupon bond for 10 years. Reinvesting at 89% will result in an ending wealth of: Wealth =

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Suppose you invest $1,000 in an 8% annual coupon bond for 10 years. Reinvesting at 89% will result in an ending wealth of: Wealth = Future value of all coupon payments + Face value received at the end =$80 x FVIFA (10,8%)+ $1,000 = $2,159 This ending wealth is composed of three componets: Face value of the coupons, interest earned on the coupons, and the face value of the bond. How much of this ending wealth is due to interest earned on interest? U 12:04 pm

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