A 5 year bond with par value x and 6% annual coupons is purchased at a price of

Question

A 5 year bond with par value x and 6% annual coupons is purchased at a price of 1120. The bond is redeemed at par. The funds are reinvested in a fund that earns 7% effective annually. If the annual effective yield on the total accumulation at the end of 5 years is 5.5%, calculate X. A 1223 B 1158 C 1097 D 1088 E 1053
Please, no excel spreadsheets A 5 year bond with par value x and 6% annual coupons is purchased at a price of 1120. The bond is redeemed at par. The funds are reinvested in a fund that earns 7% effective annually. If the annual effective yield on the total accumulation at the end of 5 years is 5.5%, calculate X. A 1223 B 1158 C 1097 D 1088 E 1053
Please, no excel spreadsheets A 1223 B 1158 C 1097 D 1088 E 1053
Please, no excel spreadsheets

Explanation / Answer

Yeild = {Interest + [(R.V - F.V)/n]}/[(R.V. + F.V)/2]

0.055 = {0.06X +[(1120-X)/5]}/[(1120+X)/2]

0.0275X + 30.80 = 0.06X + 224 - 0.20X

0.1675X = 193.20

X = 1053

Thus answer will be E 1053.

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