Hey guys/girls have another question I need help on, if you don’t mind: 3 yrs ago, at the advice of her financial planner, an investor purchased a $1000 face, 4.5%, semiannual coupon bond with 7 yrs to maturity priced to yield 6.5% for $888.94. The reinvestment income that must be generated over the life of the bond to realize a yield of 6.5% is closest to: A. $72 B. $76 C. $80 D. $83 Thanks for the help!
ans B 76$ Method: What investment in the bond would earn at the end of the 7 year period. 888.94 * (1.0325)^14 = 1391.02 What is actually obtained? 1000 Face + 22.5 * 14 (Coupons) = 1315 So amount to be reinvested = 1391.02 - 1315 = 76$
Awesome, thank you for answering so quickly