What is the investor actual annual yield rate

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Question: Please give me detailed solution of this problem. (AMS 318 book: Mathematical Interest Theory Second Edition)

(6.8) Yield rate examples

(2) An investor wishes to have an annual (effective) yield of 7%. With this goal in mind, he purchases a twelve-year $1,000 par-value bond with 10% coupons payable quarterly. The price he pays for this bond is based on the investor earning an annual yield ofexactly 7% and the assumption that the reinvestment annual effective rate of interest on coupons will be 7%. In fact, the investor only earns 4% nominal interest convertible quarterly on the coupons, which are each reinvested at the moment they are paid. What is the investor's actual annual yield rate?

Reference no: EM132042716

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