Question

The following information is for Questions 20-21. An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that par value is $100 What is the future value of the reinvested coupon payments at the end of the holding period? 35.00 40.26 41.07 44.58 46.00 Question 21 The following information is for Questions 20-21. An investor purchases a nine-year. 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that par value is $100 What is the investor's five-year horizon yield?

A)5.66%
B)6.62%
C)7.12%
D)7.95%
E)8.25%
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Answer 1

The student's question is about calculating the future value of reinvested coupon payments and determining the five-year horizon yield of a bond after an interest rate increase. Unfortunately, not enough information is given to accurately perform these calculations.

Step-by-step explanation:

The student is asking about the future value of reinvested coupon payments and the five-year horizon yield on a 9-year, 7% annual coupon payment bond sold after 5 years when interest rates have increased to 8%. To find the future value of the reinvested coupon payments, one would need to calculate the future value of each coupon payment from year 1 to year 5 compounded at the new market interest rate of 8%. However, the provided information does not include sufficient detail to calculate this, as the payments are not given.

Concerning the five-year horizon yield, we need the bond's selling price after 5 years when the interest rate is 8%, but this is also not provided. The horizon yield would account for the coupon payments received, the capital gains or losses upon selling the bond before maturity, and the reinvestment of the coupon payments. Without the bond's selling price, precise calculation of the five-year horizon yield is not possible with the given information.