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Calculate the value of the reinvestment

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Question - The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually.

i) How much should you pay for a $1,000 ARA Corporation bond?

ii) If you are given RM90,000, how many units of bond can you purchase?

iii) What is the yearly interest income for this bond if I purchase it with RM90,000?

iv) You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle.

Reference no: EM132714915

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