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What is the effective annual holding period yield

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Assume that at the beginning of 2017, the expected Inflation rate for 2017and 2018 is 3.8%, for 2019 is 6%, for 2020 and 2021 it is 4.65%.

What is the average interest rate, over the five year period, if the real rate of interest is 1.25%? Do NOT use an arithmetic average. (***Carry all decimal places for interim calculations, round final answers to 4 places.***)

(b)  Suppose that you buy a 6% annual coupon bond for $1,120.33. The bond has 15 years to maturity. Five years after purchasing the bond you sell it for $1,150.

What is the effective annual holding period Yield?

(c) A major chemical manufacturer has experienced a market re-evaluation lately due to a number of lawsuits. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8% (paid semi-annually).

What is the current value of these bonds, assuming that the level of interest rates has now risen to an effective rate of 16.64 percent?

Reference no: EM133062338

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