Question
Victor Korchnoi bought a bond one month before a semi-annual coupon was due. The face value was $10,000 and the coupon rate 8.5%. At the
Victor Korchnoi bought a bond one month before a semi-annual coupon was due. The face value was $10,000 and the coupon rate 8.5%. At the time of purchase there were 34 coupons left and the YTM was 6% p.a. compounded semi-annually. Victor kept the bond for eight years and eight months. He then sold it. At time of sale it was valued at a YTM of 6.6% p.a. compounded semi-annually. While he held the bond Victor reinvested the coupons as soon as he received them into a bank account earning interest at an EAR of 5.8%. Determine a. What was the purchase price of the bond? b. What was the selling price of the bond? c. At the time of sale, how much was in his bank account as a result of the reinvested coupons?] d. What was the HPRR expressed on a per annum compounded semi-annually basis?
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