Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9% coupon bond
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Question:
Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9% coupon bond selling at par (semi-annual coupon payments). The investor expects that he can reinvest the coupon payments at an annual interest rate of 9.4% and that at the end of the investment horizon two-year bonds will be selling to offer a yield to maturity of 11.2%.
1) What is the total of coupon and coupon reinvestment?(Round your answer to 2 decimal points)
2) What is the sale price of the bond at the end of the holding period?(Round your answer to 2 decimal points)
3) What is the expected (holding period) return for this bond?(Enter the result in percentage points (10 if you find 10%), round your answer to 2 decimal points)
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