You purchase a 20-year bond that has a par value of $1,000 and pays an annual...

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You purchase a 20-year bond that has a par value of $1,000 and pays an annual coupon of $100 ($50 every six months). The yield to maturity was 6.0 percent when you purchased this bond. Now, right after you purchased this bond, the yield (reinvestment rate) went up to 9.0 percent (4.5 percent every six months). Determine your realized compounded yield if you hold this bond for 10 years, then sell it, and reinvestment rates stay at 9.0 percent for the entire 10-year period. The yield-to-maturity when you sell the bond is also 9.0 percent. You purchase a 20-year bond that has a par value of $1,000 and pays an annual coupon of $100 ($50 every six months). The yield to maturity was 6.0 percent when you purchased this bond. Now, right after you purchased this bond, the yield (reinvestment rate) went up to 9.0 percent (4.5 percent every six months). Determine your realized compounded yield if you hold this bond for 10 years, then sell it, and reinvestment rates stay at 9.0 percent for the entire 10-year period. The yield-to-maturity when you sell the bond is also 9.0 percent.

Answer rating: 100% (QA)

The realized compounded yield is calculated as follows First ca... View the full answer