An investor wishes to have an annual effective yield of 7, Ask an Expert

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An investor wishes to have an annual (effective) yield of 7%, with this goal in mind, he purchases a twelve-year $1,000 par-value bond with 10% coupons payable quarterly. The price he pays for this bond is based on the investor earning an annual yield ofexactly 7% and the assumption that the reinvestment annual effective rate of interest on coupons will be 7%. In fact, the investor only earns 4% nominal interest convertible quarterly on the coupons, which are each reinvested at the moment they are paid. What is the investor's actual annual yield rate?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92785121

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