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Suzie has borrowed an amount at an annual effective interest rate of 6% and will repay all interest and principal in a lump sum at
Suzie has borrowed an amount at an annual effective interest rate of 6% and will repay all interest and principal in a lump sum at the end of 15 years. She uses the amount borrowed to purchase a 2000 par value 15-year bond with 10% semiannual coupons bought to yield 8% convertible semiannually. (Go find the price, so you know what was borrowed). She reinvests all coupon payments at a nominal rate of 6% convertible semiannually. Calculate the net gain to her at the end of the 15 years after she repays the loan.
Suzie has borrowed an amount at an annual effective interest rate of 6% and will repay all interest and principal in a lump sum at the end of 15 years. She uses the amount borrowed to purchase a 2000 par value 15-year bond with 10% semiannual coupons bought to yield 8% convertible semiannually. (Go find the price, so you know what was borrowed). She reinvests all coupon payments at a nominal rate of 6% convertible semiannually. Calculate the net gain to her at the end of the 15 years after she repays the loan.
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