Question
You are about to buy a 3-year bond with a YTM of 10%. The par value of the bond is $1,000. It makes annual coupon
You are about to buy a 3-year bond with a YTM of 10%. The par value of the bond is $1,000. It makes annual coupon payments of $100.
You plan on buying the bond today (t=0) and will then sell it immediately after collecting the second coupon payment (t=2). You think that you will be able to sell the bond at a yield of 9%.
After receiving the first coupon payment at t=1, you plan on reinvesting it for one year at a rather high rate of 50.6%.
If these assumptions hold, what will the realized compound return be on this investment?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
