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(Solved by Expert Tutors) Assume that you purchase a 20-year bond that has a par value of $1,000<


and pays an annual coupon of $64 ($32 every six months). Also assume that the yield to maturity was 4.2 percent when you purchased this bond. Now assume that right after you purchased this bond that the yield (reinvestment rate) went up to 6.0 percent (3.0 percent every six months). Determine what your realized compounded yield will be if you hold this bond for 10 years, assuming that reinvestment rates stay at 6.0 percent for the entire 10-year period, but then decrease to 5.0 percent the day you sell the bond.

 


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Apr 19, 2020

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