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1 4.5%
Y1 | Y2 | Y3 | Y4 |
2% | 4.50% | 7% | 9.50% |
(9.5-2)/3+2% |
2.Bond price at 8% = 1000*C*PVIFA(8%,15)+1000*PVIF(8%,15)=742.975, where C=0.05/5%
Bond price at 9% = 1000*.05*PVIFA(9%,15)+1000*PVIF(9%,15)=678.035
Loss in capital = 64.94
To recover 64.94, annual coupon payments are reinvested at 9% and present value of interest received should be equal to 64.94
64.94= 50*9%^n
n=18.26 years plus 1 year as coupon payment is received at year 1 end. hence total reinvestment period = 19.26 years.
Ans.none of the above
3. none of the above. Usually calculated as difference between risky bond and treasury bills/bonds.
4.d
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