Question
You invest in semiannual coupon, par value, 8-year bonds yielding 3% per period (6% APR). The fund must pay $100 million 8 years from now.
You invest in semiannual coupon, par value, 8-year bonds yielding 3% per period (6% APR). The fund must pay $100 million 8 years from now. You invest a total of $62316693.92 today, and right afterward, the interest rate on bonds of the same risk drops to 2% per period (4% APR). How much money do you now expect to be in the fund after 8 years? Round to the nearest thousand dollars. Hint: Figure out how much you'll get in coupon payments every period and how much you expect them (once reinvested) to grow to. Add that to the principal amount that you expect to get in Year 8.
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