Monday, August 23, 2010

Reinvesting Coupons?

Please help me with this question! I need all steps how to do this. This worth 40% of my finance mark, so please help me find the answers! Thanks.





Three years ago in 2004, an investor purchased a 10.8% semi-annual coupon bond at par value. The current yield of the bond is 10.2%. The bond will mature in 2024. Answer the following questions:


a) Calculate the price of this bond after three years (current price)?


b) What is the yield-to-maturity (YTM) at the time of the purchase? What is the YTM after three years (currently)?


c) If the investor sells the bond in 2014 (10 years to maturity), what is the percentage return on this investment? (Assume that the investor did not reinvest the coupons.)


d) Recalculate the bond price in part d) assuming the investor had reinvested the semi-annual coupons at 6.0% compounded quarterly.Reinvesting Coupons?
A) $1,058.82


B) 10.8% @ purchase, 10.155% now


C) at what price is the bond sold? at par?


D) do not understand the question,d)in part d)??

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