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What is the annual return for this bond

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Reference no: EM133012158

Question - Suppose that an investor with an 8-year investment horizon is considering purchasing a ten-year 9% coupon bond selling at par. The investor expects that he can reinvest the coupon payments at an annual interest rate of 5.8% and that at the end of the investment horizon (i.e., at the end of year eight) two-year bonds will be selling to offer a yield to maturity of 12%. What is the annual return for this bond? Assume that coupons are paid semiannually and discount rate is compounded quarterly.

Reference no: EM133012158

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