Exhibit 19.6
Use the Information Below for the Following Problem(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.
$$\begin{array} { l c c }
& \text { Current Bond } & \text { Candidate Bond } \
\hline \text { Dollar Investment } & \$ 842.38 & ? \
\text { Caupan } & 100.00 & 100.00 \
\text { i an One Coupon } & 3.0 & 2.75 \
\text { Principal Value at Year End } & 843.50 & 780.46 \
\text { Total Accrued } & 946.50 & 883.21 \
\text { Total Gain } & 104.12 & ? \
\text { Gain per Invested Dollar } & ? & ? \
\text { Realized Compound Yield } & ? & ?
\end{array}$$
-Refer to Exhibit 19.6.The realized compound yield on the current bond is

Question

Exhibit 19.6
Use the Information Below for the Following Problem(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.
 $$\begin{array} { l c c } 
& \text { Current Bond } & \text { Candidate Bond } \
\hline \text { Dollar Investment } & \$ 842.38 & ? \
\text { Caupan } & 100.00 & 100.00 \
\text { i an One Coupon } & 3.0 & 2.75 \
\text { Principal Value at Year End } & 843.50 & 780.46 \
\text { Total Accrued } & 946.50 & 883.21 \
\text { Total Gain } & 104.12 & ? \
\text { Gain per Invested Dollar } & ? & ? \
\text { Realized Compound Yield } & ? & ?
\end{array}$$
-Refer to Exhibit 19.6.The realized compound yield on the current bond is

Quizplus · Accepted Answer

The realized compound yield is calculated using the formula for compound interest, taking into account the reinvestment rate, coupon payments, and the principal value at year-end. Given the reinvestment rate of 12% and the total accrued value, the realized compound yield for the current bond is approximately 11.9985%.

Exhibit 19 -Refer to Exhibit 19