Looking for the answer for this test prep question: Seven years ago you bought a...
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Looking for the answer for this test prep question:
Seven years ago you bought a $600,000, 15-year, deep discount bond with a market interest rate of 5.90%. Since
then market rates have fallen to 5.15% and you find that you must sell the bond.
a. What was the initial price of the bond?
b. What is the current price of the bond?
c. Calculate the current annual rate of return on this instrument and compare it to the annual rate of return you were expecting.
d. Explain whether your return would have been relatively greater or less if you held originally purchased a 25-year instrument.
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