On July 1, 2006, you want to invest in the Canadian bond market. You Contact your broker
Question:
On July 1, 2006, you want to invest in the Canadian bond market. You Contact your broker to find out what options are available to you. The latter recommends that you buy the ING bond which was issued at par at the time of issue (1 January 2004). The characteristics of this bond are presented as follows :
Date of issue | 1er janvier 2004 |
Term | 20 years |
Rate of return demanded by the market at the time of issue | 14% |
Rate of return demanded by the market at 1er juillet 2006 | 12% |
Dates of interest | 1er janvier et 1er juillet |
1) According to your investment strategy, you buy the ING bond on July 1, 2006 and you sell it on November 1, 2010. At the time of the resale, the rate of return demanded by the market increases to 13%. At what price should you sell the ING bond on November 1, 2010?
2) Calculate the effective annual rate of return you will realize.
Managerial Economics A Problem-Solving Approach
ISBN: b00btm8fk0
2nd edition
Authors: Luke M. Froeb, Brain T. Mccann