What is the expected return for investment A

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Question 1 - Ben owns investment A and 1 bond B. The total value of his holdings is $2,800. Bond B has a coupon rate of 8.80 percent, par value of $1000, YTM of 9.40 percent, 14 years until maturity, and semi-annual coupons with the next coupon due in 6 months. Investment A is expected to pay annual cash flows to Ben of X per year forever with the first annual cash flow expected in 1 year from today. The expected return for investment A is 7.91 percent. What is X, the fixed annual cash flow that will be paid forever by investment A?

Question 2 - Cy owns investment A and 1 bond B. The total value of his holdings is 2,690 dollars. Bond B has a coupon rate of 10.06 percent, par value of $1000, YTM of 4.1 percent, 18 years until maturity, and semi-annual coupons with the next coupon due in 6 months. Investment A is expected to produce annual cash flows forever. The next cash flow is expected to be 70.33 dollars in 1 year, and subsequent annual cash flows are expected to increase by 4.06 percent each year forever. What is the expected return for investment A?

Reference no: EM132479764

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