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A 14-year, 8% coupon, paid semiannually, option-free bond is currently traded at 109. If an investor...

A 14-year, 8% coupon, paid semiannually, option-free bond is currently traded at 109. If an investor reinvests coupon income at 6%, what is the total return of the investment? Keep four decimals, e.g., 10.1234%.

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Expert Solution

Total return=((FV(6%/2,14*2,-8%*100)+100)/(109))-1=306.8325%

Annual return or rate of return=((FV(6%/2,14*2,-8%*100)+100)/(109))^(1/14)-1
=10.5426%

jeff jeffy answered 2 years ago
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