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Suppose that you bought a 14% Drexler bond with time to maturity of 9 years for $1,379.75 (semiannual coupons, interest rate=8%). After another...

1.    Suppose that you bought a 14% Drexler bond with time to maturity of 9 years for $1,379.75 (semiannual coupons, interest rate=8%). After another ½ year, you sold the bond.

a.    Assuming that the required rate of return remained at 8%, what would the selling price be? What is the rate of return from this investment?

b.   Assuming that the required rate of return decreased to 7.5%, what would the selling price be? What is the rate of return from this investment?

Top Answer

a) 1) Selling price = Semi Annual coupon*(1-(1+r)^-n)/r + Face value/(1+r)^n r = 8%*1/2 = 4% n = 9*2 - 1 = 17 Selling price =... View the full answer

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