consider the payoff matrix below note the first number in each cell represents t

Question

consider the payoff matrix below note the first number in each cell represents the payoff to the row player consider the payoff matrix below note the first number in each cell represents the payoff to the row player consider the payoff matrix below note the first number in each cell represents the payoff to the row player Question 4 You purchased a bond at par on January 1. The coupon rate was 5% per year, paid annually. The maturity date was three years from the date of purchase, and the par value was $1,000. Assume that the reinvestment interest rate was 5% in the first year, 6% in the second year, and 3% in the third year. Calculate the annual realized compound return. Show your calculation.

Explanation / Answer

A / 1 B C D E F G 2 Bond par value $1,000 3 Term                         3 Years 4 Coupon Rate 5% 5 Coupon payment Annually 1 6 Calculation of Returns 7 Year Bond Coupon received Reinvestment Rate Reinvestment Gain 8 0 $1,000 $0 0% $0.00 9 1 $1,000 $50 5% $0.00 10 2 $1,000 $50 6% $3.00 =D9*E10 11 3 $1,000 $50 3% $3.09 =(D9+D10+F10)*E11 12 13 Total: $150.00 $6.09 14 15 Total Gain $156.09 16 Investment $1,000 17 Annual compounded rate of return 4.95% =RATE(C3,0,-C2,(C16+C15),0)

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.