A 3-Year fixed interest bond pays a coupon of 5% p.a., yearly in arrears and is redeemed at par. An investor purchases the 100 nominal of the bond at 95. (1) Compute the effective annual rate. (2) If the value of the inflation index (I) over 3 years has the following behaviour: I(t = 1) = 104. I(t = 2) = 108.16 and I(t = 3) = 112.49

A 3-Year fixed interest bond pays a coupon of 5% p.a., yearly in arrears and is redeemed at par. An investor purchases the 100 nominal of the bond at 95. (1) Compute the effective annual rate. (2) If the value of the inflation index (I) over 3 years has the following behaviour: I(t = 1) = 104. I(t = 2) = 108.16 and I(t = 3) = 112.49

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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