A bond has an annual coupon of 8% with semiannual frequency. Thematurity leftover is 9 years and the bond is callable in 3 yearswith a 20% call premium. The face value is $1000. The currentmarket price of the bond is $1,071.
Now assume, investor held bought the bond today at the currentmarket price and held the bond for 4 years. Each coupon hereinvested at 6%. Then he sold the bond exactly after 4 years fromtoday when the YTM was 9%.
a) Calculate the selling price after 4 years.
b) Calculate the future value of reinvested coupons (FVRC) after 4years from today.
c) Calculate his holding period return (HPR). Then using thatcalculate his annualized realized HPR.
