Question

**You purchased a $1,000 par value 20-year 4% coupon bond
with semi-annual payments for $1,000. Immediately after the
purchase, interest rates increased and the yield to maturity and
coupon reinvestment rate increased to 6%. (the coupons themselves
stayed at 4%) Interest rates and the yield to maturity remain at 6%
and you sell the bond 5 years later, having reinvested the coupons
at 6%. How much is in your account (proceeds from bond sale and
value of all coupons after reinvesting them) after you sell the
bond? Hint: one of the steps is to calculate the selling price of
the bond.**

Answer #1

Sale proceeds after 5 years= $914.70

Accumulated value of interest at 6% per year= $229.29

Money available (sale price +
interest accumulated)= **$1,143.98**

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