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 value of the swap is ____ basis points in one year.

A) 26.91
B) 26.25
C) 31.25
D) 41.25
E) 51.25