Consider a 15-year 7% coupon bond with a par value of $1,000 and semi-annual coupon...
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Consider a 15-year 7% coupon bond with a par value of $1,000 and semi-annual coupon payments. If an investor bought the bond at $769.40 and the yield to maturity is 10%. Assuming the reinvestment rate is the same as yield to maturity. What is the interest on interest income at maturity? If the yield to maturity increases to 11% right after the purchase, what is the interest on interest income at maturity? If the yield to maturity increases to 11% right after the purchase, what is the capital gain/loss on this bond if the investor decided to sell after 5 years? Carrying value is the hypothetic price of the bond if the bonds yield remains at the initial yield, which is 10% in this problem.
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