3) (4 pts) You buy a $1000 face value bond that mature in 3 years, pays...

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3) (4 pts) You buy a $1000 face value bond that mature in 3 years, pays a 5% annual coupon and is priced at $965. N = 3 i = 6.317 PV=-965 PMT: 0.05 1000 = 50 FV: 1000 6.32 a. What is the Yield to maturity of this bond? YTM = % b. What is your realized compound yield if hold the bond to maturity and you reinvest the coupons at the following rates: Year 1 coupon is re-invested in a 2 year CD paying 3% per year Year 2 coupon is re-invested in a 1 year CD paying 2% per year 51.5 520253.045 50 9.51 Realized compound Yield = % 3) (4 pts) You buy a $1000 face value bond that mature in 3 years, pays a 5% annual coupon and is priced at $965. N = 3 i = 6.317 PV=-965 PMT: 0.05 1000 = 50 FV: 1000 6.32 a. What is the Yield to maturity of this bond? YTM = % b. What is your realized compound yield if hold the bond to maturity and you reinvest the coupons at the following rates: Year 1 coupon is re-invested in a 2 year CD paying 3% per year Year 2 coupon is re-invested in a 1 year CD paying 2% per year 51.5 520253.045 50 9.51 Realized compound Yield = %

Answer rating: 100% (QA)

To calculate the realized compound yield when reinvesting the coupons at different rates we need to ... View the full answer