Three years ago, at the advice of her financial planner, an investor purchased a $1000 face, 4.50% semiannual coupon bond with seven years to maturity priced to yield 6.50% for $888.94. The reinvestment income that must be generated over the life of the bond for the investor to realize a yield of 6.5% is closest to: A) $72 B) $76 C) $80 D) $83
received coupon payments over 7 years = 22.5 * 14 = 315 PMT=22.5, I/Y=3.25, N=14 FV = 391.02 (This is the amount that he would have obtained, if all coupons had been reinvested at the 6.5% rate) Reinvestment income = 391-315 = 76$