 # Asset Val. 2

A 3 yr. 6% coupon, semiannual pay note has a yield to maturity of 5.5%. If an investor holds this note to maturity and earns a 4.5% return on reinvested coupon income, his realized yield on the note is closest to 5.46 5.57 5.68 5.79 Thanks.

intuitively, somewhere in between the YTM and reinvestment interest, which would be answer A. with calculus: compute PV of the bond: N=6, I/Y=5.5/2, PMT=30, FV=1000=>PV=1,013.66 compute the FV of the annuity and add it to the FV (or face value) of the bond: N=6, I/Y=4.5/2, PMT=30, PV=0 =>FV=190.43, add it to the face value of the bond, for a total of 1,190.43 an investment of 1,013.67 today would pay 1,190.43 after 6 periods: N=6, PV=-1,013.67, PMT=0, FV=1,190.43 solve for I/Y=2.715~2.72 semiannual, 5.44 annual, still, answer A

Yes answer is A.

map1 Wrote: ------------------------------------------------------- > intuitively, somewhere in between the YTM and > reinvestment interest, which would be answer A. > > with calculus: > > compute PV of the bond: N=6, I/Y=5.5/2, PMT=30, > FV=1000=>PV=1,013.66 > compute the FV of the annuity and add it to the FV > (or face value) of the bond: N=6, I/Y=4.5/2, > PMT=30, PV=0 =>FV=190.43, add it to the face value > of the bond, for a total of 1,190.43 > > an investment of 1,013.67 today would pay 1,190.43 > after 6 periods: > N=6, PV=-1,013.67, PMT=0, FV=1,190.43 solve for > I/Y=2.715~2.72 semiannual, 5.44 annual, still, > answer A So…where is the calculus?

> So…where is the calculus? Well calculus is sorta needed for deriving PV/FV’s of cash flows.