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You can buy a 5-year bond today for $9,000 though the bond's face value is $10,000. The bond rate is 10% p.a. (nominal) and interest
You can buy a 5-year bond today for $9,000 though the bond's face value is $10,000. The bond rate is 10% p.a. (nominal) and interest is paid semi-annually. The redemption price is equal to the face value. Draw a cash flow diagram for this bond from your perspective. If your effective annual interest rate for both reinvestments and financings (i.e., your minimum attractive effective annual yield) is 12.36% p.a., what is the annual external rate of return (ERR) of this investment? Would you invest in this bond? Why
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