Question
Today, you purchased a five-year,annual payment 6%coupon bond for $1,000and you planned on holding it tomaturity.However,rightafter you purchased the bond, it was called at $1,043.29
Today, you purchased a five-year,annual payment 6%coupon bond for $1,000and you planned on holding it tomaturity.However,rightafter you purchased the bond, it was called at $1,043.29 when all interest rates fell to 5%. You reinvested the money in a savings account at your local commercial bank and the account pays annual interest at the prevailing 5%. Assume that interest rates remained at 5% for the full five years and you did not withdraw any funds from the account for the five years. What was your annual compound rate of return based on your original investment?
5.00%
5.75%
5.89%
6.14%
5.48%
5.23%
6.00%
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