A 10-year bond with semi-annual coupons of $70 and redemption value of $1000 was purchased...
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A 10-year bond with semi-annual coupons of $70 and redemption value of $1000 was purchased for $1270. The coupons (received by the original bond owner) were invested at 8% convertible semiannually.
Two years and six months after purchase, the bond is sold at a price which will yield the original owner 7% (convertible semi-annually).
Assuming the new owner holds the bond to maturity and accumulates a sinking fund with level deposits each six months to replace the premium he paid for the bond, what annual yield rate (convertible semi-annually) does the new owner realize? Assume the sinking fund rate is 9% convertible semiannually. (Answer: 11.3%)
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