1. What is the market price of a 10-year $ 1000 par value bond that pays 10.0% semiannual coupons if the current yield is 6.0% compounded semiannually? (Round to the nearest cent.)

2. If an investor borrows funds at an annual effective interest rate of 7.0% to buy the bond at the market price, what lump sum will she have to repay at the end of the 10 years? (Round to the nearest cent.)

3. If while holding the bond she is able to reinvest each of the coupons as they are received at a fixed rate of 6.0% compounded semiannually, what lump sum, including the reinvested coupons and bond face value, will she receive when the bond matures? (Round to the nearest cent.)

4. What will be her expected net gain or loss when the bond matures? (Write answer with a positive sign if gain or negative sign if loss Round to the nearest cent.)

5. Given this expected scenario, what should she do? a. She should do nothing

b. She should borrow and then invest in the bond

c. She has insufficient information to make a decision

Answer rating: 100% (QA)

1 Market Price of the Bond Par value PV 1000 Coupon rate 10 semiannually 5 per period Coupon payment ... View the full answer