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You want to buy, on July 1, 2007, an ADS bond which offers a coupon rate of 12% (coupon payments are made semi-annually) and which
You want to buy, on July 1, 2007, an ADS bond which offers a coupon rate of 12% (coupon payments are made semi-annually) and which matures on July 1, 2027. Knowing that the rate of return demanded by the market on this bond is 10% compounded semi-annually. You buy this bond on July 1, 2007 and you decide to sell it in 5 years. The rate of return demanded by the market at the time of resale increases to 12%. A. At what price should you resell the ADS bond? B. Calculate the effective rate of return you will realize.
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