An investor is considering purchasing a 20-year 7% coupon bond selling for $816 and a par...
An investor is considering purchasing a 20-year 7% coupon bond selling for $816 and a par value of $1,000. Calculate the interest on interest from the bond assuming that the semi-annual coupon payments can be reinvested at 4½% every six months.
Homework Answers
| Semiannual coupons = 1000*3.5% = | $ 35.00 |
| FV of the reinvested coupons = 35*(1.045^40-1)/0.045 = | $ 3,746.06 |
| Interest on interest = 3746.06-35*40 = | $ 2,346.06 |
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