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Suppose an investor can purchase a 10-year, 4% coupon bond that pays interest semiannually and the price of this bond is $100. The yield to maturity for this bond is 4% on bond-equivalent basis. Assume the investor can reinvest the coupon payments at 5% compounded semiannually.
a. Compute the following for this bond:
total coupon interest =
total reinvestment income=
total dollar return=
b. What is the total return on a bond equivalent basis if it held to maturity?
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