End of the year and semiannual reinvestment rate

Reference no: EM13882989

Bond of Zello Corporation pays its coupons semiannually. The annual coupon rate is 6%, the maturity is 15 years, and the annual yield to maturity is 7%.

i. Find the holding period return for one year investment period if the bond is selling at annual yield to maturity 6% by the end of the year and semiannual reinvestment rate is 3%.

ii. Find the realized compound yield for a two-year holding period, assuming that (1) you sell the bond after two years; (2) the bond annual yield is 6.5% at the end of the second year; and (3) semiannual reinvestment rate remains at 3.5% for the next two years.

Reference no: EM13882989

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