a. Consider a 6 percent, 10-year bond purchased at face value. Assuming a reinvestment rate of 5 percent,

Calculate
The interest on interest
The total dollar return
The realized compound yield

b. You need $40,000 five years from now to pay off a balloon payment on your house. You buy 30 bonds at face value with five-year maturities yielding 6.2 percent. Will you have enough to meet your obligation?

c. Your aunt wishes to accumulate $100,000 as part of her retirement, which will occur in 15 years. She can buy 50 bonds at face value yielding 5.4 percent. These bonds mature in nine years. She anticipates that in nine years she can invest her accumulated wealth from the bonds in a 4.2 percent savings account with semiannual compounding. Can she achieve her goal of $100,000?

d.You are considering the purchase of an unusual corporate bond with a face value of $25,000, which matures in six years. The cost of this bond is $16,000. Based on semiannual interest, what bond equivalent return will be earned on this investment?
e. A six-year bond with a 7 percent coupon is selling to yield 8 percent. If interest rates remain constant, one year from now will the price of this bond be lower or higher? Prove your answer.

Answer rating: 100% (QA)

The interest on interest is 180 3000 x 6 x 5 The total dollar return is 3180 3000 180 and The realiz... View the full answer