An investor buys a 6% coupon bond with 25 years to maturity and yield to maturity...

An investor buys a 6% coupon bond with 25 years to maturity and yield to maturity of 5.8%. Four years later the yield to maturity is 6.2% and the investor sells the bond. During the 4-year holding period, coupons are reinvested at 5.8% annual rate (coupons are received and reinvested semi-annually) during the 4-year holding period. The bond pays semi-annual coupons. a. What is the purchase price of the bond? b. At what price is the bond sold after 4 years? c. How much will be accumulated from the coupons received and reinvested? d. Putting the answers from b and c above together, how much does the investor have at the end of 4 years?

Expert Solution

a)

Hence, Bond purchase price is $1,026.23

b)

Hence, Bond sale price is $976.69

c)

Hence, Accumulated sum is $265.83

d)

Hence, Investor will have $1,242.52 ($976.69+$265.83)

jeff jeffy answered 5 months ago

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