Can someone please breakdown this practice problem?
Janet has set a 7% yield as the goal for the bond portion of her portfolio. To achieve this goal, she has purchased a 7%, 15-year corporate bond at a discount price of 93.50. What amount of reinvestment income will she need to earn over this 15-year period to achieve a compound return of 7% on a semiannual basis?
Step 1 was asking what the future value would be of an investment of 935 invested at 7%, which you correctly solved to be 2,624.35. If Janet invests 935 today, never adds any money to the account, and never takes any money from the account, then the ending value of the account will need to be 2,624.35 for her to have earned a 7% return.
Now we’re trying to break that 2,624.35 ending value into pieces:
How much is principal?
How much is coupon?
How much is reinvestment income?
So . . . Step 4: What is the total value of the coupon payments?