Question: Consider a 30 year coupon bond with a face value of $1,000 that pays $55 annual coupons (beginning one year from today). Assume that you

Consider a 30 year coupon bond with a face value of $1,000 that pays $55 annual coupons (beginning one year from today). Assume that you invest each coupon in a bank that pays 7% interest. On the maturity date, how much money do you have (in total) from the bond? Suppose that you bought the bond at issue for $860.84. What is your (average) annual return on the investment over the 30 years?

A) 7.00%

B) *6.80%

C) 7.60%

D) 6.90%

E) 7.05%

CORRECT ANSWER IS B. PLEASE EXPLAIN WITH DETAIL. THANKS IN ADVANCE!

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Consider a 25 year coupon bond with a face value of $1,000 that pays $84 annual coupons(beginning one year from today). Suppose that you bought the bond at issue for $922.18. Answer the following...

consider a 35 year coupon bond with a face value of $1000 that pays $80 annual coupon (beginning 1 year from today). assume that you invest each coupon in a bank that pays 8% interest. by the...

Answer is A, howto solve? Refer to the data in the table. Consider a 2-year coupon bond with a face value of $1,000 and that pays annual coupons of $55. The next coupon is due in one year. What is...

Masterpiece, a music instrument company, has just issued a perpetual bond with a face value of $1,000. The bond pays an annual coupon of 10%. One year from now, there is an 65% probability that the...

Dear Sir I would like the answers of the attached exams. only calculations Student id. .................................. School of Business and Economics EXAMINATION Course : Risk Management...

Consider a 30 year coupon bond that pays $75 annual coupons (beginning one year from today). What is the sum (undiscounted) of the coupons? $2,250 $3,015 $2,495 $2,800 $2,500

Answer the following. a. Consider a 30 year coupon bond with $75 annual coupons. The next coupon is due one year from today. Assume that the yield curve is flat and so all yields are 8%, and yields...

Need to complete 10 homework but now i need 5 homework then after some time 5 homework more. Here it is attachment. Chapter 5 HW Questions [ALL OF THESE MUST BE DONE IN EXCEL] 1. Future value: Chuck...

BACKGROUND An SM bond is a 35-year Australian government bond with a face value of $1. They are marketed to consumers saving for retirement (who buy the S part) and investors (who buy the M part)....

1. A bank is paying interest at a 5% annual rate on deposits. If you invest 10,000 and the bank compounds interest daily (i.e., 365 times per year), which of the following shows how much you will...

Four steps for business analysis are discussed in the chapter (strategy analysis, accounting analysis, financial analysis, and prospective analysis). As a financial analyst, explain why each of the...

Determine whether the series is convergent or divergent. (a) (b) 1 + 1/8 + 1/27 + 1/64 + 1/125 + ... (c) 1 + 1/3 + 1/5 + 1/7 + 1/9 + ... -I n

Which of the following would NOT be classified as an Operating Expense? Rent for office space. Research Which of the following would NOT be classified as an Operating Expense? Rent for office space....

Using the data in the Students worksheet as the basis of the calculation, in cell B29 (of the MyFinal worksheet) enter a COUNTIF function to show the total number of Accounting students. I need to...