You followed your broker's recommendations by buying the XELA bond on March 1, 2023. This bond has a face value of $1,000, a coupon rate of 8%, and matures on September 1, 2042. The market-demanded rate of return on this bond, as of March 1, 2023, is 9%. Interest coupons are paid on a semi-annual basis.
You plan to sell the XELA bond on February 1, 2028. You expect the market-demanded rate of return on this bond to drop to 12% when you sell it. Also, your broker offers to reinvest your coupons at an effective rate of 11%. You are asked to calculate the effective return you will have made in the XELA bond.

Answer rating: 100% (QA)

Here are the steps on how to calculate the effective return Calculate the present value ... View the full answer