Interest rate risk impacts bonds in 2 ways First reinvestment rate may be lower than anticipated Bond

Fantastic news! We've Found the answer you've been seeking!

Question:

Interest rate risk impacts bonds in 2 ways First reinvestment rate may be lower than anticipated Bond has 5 years to maturity; the coupon is 7% per annum (SA) YTM is 8% per annum; FV is 1000 While buying the expectation is that all coupons can be reinvested till the end at the YTM But actual reinvestment happened only at 6.4% per annum . 1. What is the ROR if the bond is held till maturity and coupons are reinvested at 8%

2. what is the ROR if the bond is held till maturity and the coupons are reinvested at 6.4%

Related Book For answer-question

Fundamentals of Corporate Finance

ISBN: 978-1260153590

12th edition

Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan

See More Books

Posted Date: Apr 05, 2024 02:38 AM

See More Questions

Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
B Corporation has $1000 par value bonds with 9 years left to maturity, a stated annual coupon rate of 6.5 percent (with annual interest payments). What are these bonds worth today if the required...
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
The roller coaster in Figure P6.36 starts with a velocity of 15 m/s. One of the riders is a small girl of mass 30 kg. Find her apparent weight when the roller coaster is at locations B and C. At...
Define and contrast the following terms: subnet, prefix, and BG? route.
The Creator restaurant has replaced cooks and food preparers with a robot. On its website, the company describes the people who work there as a motley crew of engineers, culinary scientists,...
Casey Ltds accounting system uses special journals and subsidiary ledgers. The following transactions occurred during March 2025 (GST is ignored). All sales are n/30. Required (a) Ignoring GST, enter...
At the beginning of July, CD City has a balance in inventory of $3,400. The following transactions occur during the month of July. July 3 Purchase CDs on account from Wholesale Music for $2,300,...
Explain the issues that an auditor may need to deal with in the cash accounts, especially if the company has foreign bank accounts for international transactions. Also, would a schedule of interbank...
Oriole Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease electronic equipment to Wai Corporation, which also uses IFRS 16. The term of the non-cancellable...
The financial statements of Glade Ltd for the year ended 30 June 2022 show a profit before tax of $220,500, including the following items of income and expense: Fines and penalties Impairment of...
The CRC algorithm as presented in this chapter requires lots of bit manipulations. It is, however, possible to do polynomial long division taking multiple bits at a time, via a table-driven method,...
With 1 parity bit, we can detect all 1-bit errors. Show that at least one generalization fails, as follows: (a) Show that if messages m are 8 bits long, then there is no error detection code e = e(m)...
The World Bank reported the following fertility rates for Brazil, measured as the average number of children born per woman of childbearing age: 1970: $5.0 \quad$ 1980: $4.1 \quad$ 1990: \(2.8...
How long does it take to transmit x kB over a y-Mbps link? Give your answer as a ratio of x and y.
Calculate the total time required to transfer a 1000-kB file in the following cases, assuming an RTT of 100 ms, a packet size of 1 kB data, and an initial 2 RTT of handshaking before data are sent....
Write a brief note on Spiral of Silence theory based on a journal article about a mass communication.
What is the purpose of the journal wizard?
Refer to the latest financial report of JB Hi-Fi Limited on its website, www.jbhifi.com.au, and answer the following questions. 1. Is it likely that JB Hi-Fi Limited would have to confront such...
Imelda Instruments Ltd manufactures two products: missile range instruments and space pressure gauges. During January, 53 range instruments and 360 pressure gauges were produced, and overhead costs...
Swiss Chocolates Ltd produces blocks of chocolate. Raw materials in the form of cocoa solids, milk and sugar are added at the beginning of the process, flavouring, fruit and nuts are added half-way...

Interest rate risk impacts bonds in 2 ways First reinvestment rate may be lower than anticipated Bond

Question:

Expert Answer:

Scenario 1 Reinvestment Rate at 8 YTM Annual Cash Flows Coupon payment per year 7 1000 face value 70 ... View the full answer

Fundamentals of Corporate Finance

Students also viewed these finance questions