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 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25-year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.

-Refer to Exhibit 13.7. The realized compound yield on the current bond is
A) 6.00%.
B) 7.00%.
C) 8.00%.
D) 10.00%.
E) 12.00%.

Question

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 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25-year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.
 
-Refer to Exhibit 13.7. The realized compound yield on the current bond is
A) 6.00%. 
B) 7.00%. 
C) 8.00%. 
D) 10.00%. 
E) 12.00%.

Quizplus · Accepted Answer

The Answer of 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 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25-year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.
 
-Refer to Exhibit 13.7. The realized compound yield on the current bond is
A) 6.00%. 
B) 7.00%. 
C) 8.00%. 
D) 10.00%. 
E) 12.00%.