Computation of value of the bond

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Reference no: EM1311245

For each of the bonds and reinvestment rates listed below calculate the amount of
money accumulated at the end of $1,000 initial investment:

(a) Invest $1,000 in a 5-year zero-coupon bond with a yield to maturity of 9 percent.

(b) Buy a 5-year 9% coupon annual pay bond at par ($1,000) and reinvest the annual coupons at 9% (annual compounding).

(d) Same as (b), but reinvest the annual coupons at 6%.

(e) For (a) through (d) calculate the annual holding period return. What can you conclude about the relationship between yield to maturity and holding period returns?

Reference no: EM1311245

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