Answer:
Face Value = $1,000
Selling Price = $892.50
Purchase Price = $951.72
Annual Coupon Rate = 5%
Annual Coupon = 5% * $1,000
Annual Coupon = $50
Holding Period = 4 years
Let Realized Return be i%
$951.72 = $50 * PVIFA(i%, 4) + $892.50 * PVIF(i%, 4)
Using financial calculator:
N = 4
PV = -951.72
PMT = 50
FV = 892.50
I = 3.78%
Realized Return = 3.78%
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