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In: Accounting

An investor purchased a bond at its face value of $2500. The bond stipulates a fixed...

An investor purchased a bond at its face value of $2500. The bond stipulates a fixed nominal interest rate of 8% per year, paid quarterly, over its 5 year life. The investor is thinking about selling the bond after four years for $2200.

a.Draw out the cash flow diagram illustrating this situation (either manually or using Excel).

b.Determine the quarterly IRR, the nominal rate of return, and the effective rate of return if the bond is sold after four years. State the rates as percentages, formatted to two decimal places (i.e., xx.xx%). Briefly describe in plain English what each of these values means.

c. If the investor wants to obtain a nominal interest rate of at least 7% per year for this investment, will she meet her goal if she sells the bond as described above?

(if using excel please provide the equations)

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ekkarill92 answered 1 year ago
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