Joe purchases a ten year $20,000 corporate bond that has a coupon rate of 8% payable...

Joe purchases a ten year $20,000 corporate bond that has a coupon rate of 8% payable semiannually. Immediately after receiving the 12th dividend, Joe sells the

bond to Schmoe at a price that gave Joe a 10.25% annual effective return on his investment. Schmoe keeps the bond until the end of its life.

a) What is Joe’s selling price?

b) What is Schmoe’s approximate annual effective return on his investment (yield)?

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Expert Solution

Rahul Sunny answered 1 year ago

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