You bought a bond for $1000 today. The maturity of this bond is 20 years from now. Please assume this hypothetical bond pays interest annually (not semi-annually). The annual coupon rate is 8% paid annually. You sell this bond after four years. The annual interest rate (reinvestment rate) for year 1 is 8% going up by an absolute value of 1% each year for the following three years and remains constant thereafter. You sell this bond after four years.

The total reinvested coupons after four years is closer to?

Answer rating: 100% (QA)

To calculate the total reinvested coupons after four years we need to consider the annual coupon pay... View the full answer