What is holding period return from this investment

Reference no: EM132719638

Problem - You buy a bond today. The bond has a face value of $1000, will mature in 10 years, and pays coupon on an annual basis. The coupon rate is 8%, and the YTM is 10%. Assume that every time you receive a coupon you reinvest it. The annual reinvestment rate at the end of year 1 is equal to the YTM; it becomes 6% at the end of year 2 and 7% at the end of year 3. During year 4, the company starts to face financial distress, and becomes bankrupt. At the end of year 4, from the liquidation you are able to obtain 50% of the face value of the bond but no year 4 coupon. What is your 4-year holding period return from this investment?

Reference no: EM132719638

Questions Cloud

What is the rationale for ordering bed rest : While the patient is experiencing the severe crampy pain of acute diverticulitis, what interventions would you perform to help him feel more comfortable?

Discuss how to communicate effectively with others : This topic discusses the importance of communicating. One of the goals of GCU is to help you effectively communicate throughout your life.

What is Ali outside basis in his partnership interest : The fair market value of Ali's partnership interest is estimated at $500,000. What is Ali's outside basis in his partnership interest

Make a bank reconciliation for candace co for may : Create a bank reconciliation for Candace Co. for May 31. Outstanding checks amounted to $649. The bank statement balance is $4,135.

What is holding period return from this investment : You buy a bond today. The bond has a face value of $1000, will mature in 10 years, What is holding period return from this investment

Solve the annual depreciation and total depreciation : Sunland has a December 31 year end Calculate the annual depreciation and total depreciation over the (1) Straight-line method asset's life

Positive intervention strategies with challenging behavior : It is important to use positive intervention strategies with challenging behavior for children.

What is the total sales revenue that amc must earn to do so : Alex Mogilny Company, If AMC wishes to make a profit of $98,500, what is the total sales revenue that AMC must earn to do so?

Which amount is the net present value of the project closest : A project with an initial cost of $314,000 will generate no returns in the first two years of operations, Which amount is the net present value of the project

User Account

All Pages