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