Captain Agooji bought the 4-year Treasury note at the par value of GHS100. The coupon rate...
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Captain Agooji bought the 4-year Treasury note at the par value of GHS100. The coupon rate on the note was 18% and coupon payments were made annually. When Agooji received the first interest, he could invest it for 18.5% interest; when the second interest was received, he could invest it for 17% interest; and when the third interest was received, he could invest ít for 19% interest. When the fourth and final interest was received average interest rate was 16%. Required: (a) Explain the difference between yield to maturity and realised compound return. Focus on at least two points of distinction. [4 marks) (b) Assuming that Captain Agooji reinvested coupon payments at the respective interest rates over the holding period, compute the realised compound rate of return on his investment in the note. Captain Agooji bought the 4-year Treasury note at the par value of GHS100. The coupon rate on the note was 18% and coupon payments were made annually. When Agooji received the first interest, he could invest it for 18.5% interest; when the second interest was received, he could invest it for 17% interest; and when the third interest was received, he could invest ít for 19% interest. When the fourth and final interest was received average interest rate was 16%. Required: (a) Explain the difference between yield to maturity and realised compound return. Focus on at least two points of distinction. [4 marks) (b) Assuming that Captain Agooji reinvested coupon payments at the respective interest rates over the holding period, compute the realised compound rate of return on his investment in the note.
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