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Lenora current holds a 10-year maturity bond. She decides to sell her bond at the end of her investment horizon,

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Lenora current holds a 10-year maturity bond. She decides to sell her bond at the end of her investment horizon, which is before the maturity of the bond. The bond has a Macaulay duration of 7 years. Based on the What-if analysis results presented in the table below, is Lenora's investment horizon longer than the 7 years, less than 7 years, or equal to 7 years?  Lenora's bond Scenario 1 Scenario 2 Scenario 3 YTM (%) 9.00% 6.00% 12.00% FV of reinvested coupon at the end 

 

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Lenora's bond Scenario 1 Scenario 2 Scenario 3 YTM (%) 9.00% 6.00% 12.00% FV of reinvested coupon at the end of investment horizon $73.60 $67.15 $80.71 Bond's price if sold at the end of investment horizon $97.47 $105.35 $90.39 FV of reinvested coupon plus sale price of bond at the end of investment horizon $171.07 $172.50 $171.10

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To determine whether Lenora s investment horizon is longer than equal to or less than 7 years we nee View the full answer


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Fundamentals Of Corporate Finance

Fundamentals Of Corporate Finance

ISBN: 9780135811603

5th Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

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Question Details
Chapter # 7
Section: CASE QUESTIONS
Problem: 1
Posted Date: September 24, 2023 03:31:11
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