Exhibit 16-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 16-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The following information is given concerning a substitution swap: You currently hold a 25 year, Aa 8% coupon bond priced to yield 10%. As a swap candidate you are considering a 25 year, Aa 8% coupon bond priced to yield 10.50%. Assume a reinvestment rate of 10%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline\text { Dollar Investment } & \$ 817.44 & ? \\\text { Coupon } & 80.00 & 80.00 \\\text { on One Coupon } & 2.00 & 2.20 \\\text { Principal Value at Year End } & 819.23 & 782.33 \\\text { Total Accrued } & 901.23 & 864.53 \\\text { Total Gain } & 83.79 & ? \\\text { Gain per Invested Dollar } & ? & ? \\\text { Realized Compound Yield } & ? & ?\end{array}$

-Refer to Exhibit 16-4. The dollar investment in the candidate bond is

A) $780.34
B) $1483.25
C) $1361.54
D) $1413.95
E) $1000.00