Logo
Home Study Material Contact Search
AI Chat FREE
  1. mathematics
  2. basic math
  3. 1 suppose that an investor with a five year invest

1 Suppose that an investor with a five year investment horizon is considering purchasing a...

80.2K

Verified Solution

Question

Basic Math

image

1 Suppose that an investor with a five year investment horizon is considering purchasing a seven year 7 coupon bond selling at par 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 What is the total return on this investment The investor has a five year investment horizon and purchases a seven year 7 coupon bond for 1 000 The yield to maturity for this bond is 7 since it is selling at par The investor expects to be able to reinvest the coupon interest payments at an annual interest rate of 9 4 and that at the end of the planned investment horizon the then two year bond will be selling to offer a yield to maturity of 11 2 Hint using semiannual interest to compute total return for a bond on p 61 C 7 1 000 2 Step 1 to apply eqn 3 7 coupon interest interest on interest C 1 r r Step 2 utilizing eqn 2 7 2 8 projected sale price PV coupon payments PV par value 1 1 r r M 1 r Step 3 sum up 1 2 as the total future dollars Step 4 to obtain the semiannual total return use the formula Step 5 Double step 4 for the total return total future dollars purchase price of bond

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Accounting
1.2K views

Module 2 Case Information  Zeller & Merkel, Inc. (ZM) is a mid-sized high-techmanufacturing firm that...Module...

Accounting
1.2K views

P3-1 (L02,4,5) (Transactions, Financial Statements—Service Company) Listed below are the transactions of Yasunari Kawa-bata, D.D.S., for the...

Psychology
1.2K views

Describe STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS, as an E-Business Customer Relations Manager for the newly established E-commerce company....

Biology
1.2K views

Match the given terms to their description to assess the understanding of thermodynamics Term Free...

Biology
1.2K views

we the provided specimen seen under 4x Identify the pattern of symmetry group

Statistics
1.2K views

Suppose you are playing a game with 5 fair dice In the game you roll...

Algebra
1.2K views

15 points Let denote the vector space of all polynomials in the variable x of...

Algebra
1.2K views

Complete the table plot the ordered pairs and graph x y 2 5 Y 5...

Accounting
1.2K views

Exerclse 23-5(Algo) Sell or process LO P2 Varto Company has 12,800 units of...

Accounting
1.2K views

Professional Fees Earned Budget Day & Spieth, CPAs, offer three types of services to clients:...

Finance
1.2K views

3. The effect of financial leverage on ROE Aa Aa Companies that use debt in...

Finance
1.2K views

plase long version ( not excel) Project A requires an...