You check the Wall Street Journal for bond prices and find that a 30-year, 6% coupon...

You check the Wall Street Journal for bond prices and find that a 30-year, 6% coupon (paid semiannually, of course) Minnesota Mining and Manufacturing bond is selling for $870. The bond has a par value of $1,000. You only want to hold the bond for 12-years at which time you believe you can sell the 3M bond to yield 8%. What is the total return on your horizon if you can reinvest all coupons at 7%? Don’t forget to find annual return, both EAR and BEY.

Solutions

Expert Solution

Bond Equivalent yield (BEY)= 7.05216%

Effective Annual Rate (EAR)= 7.17649%

Calculation as below:

jeff jeffy answered 2 years ago

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