Consider a 6% coupon bond with 2 years time-to-maturity and $1000 face value, is selling for $900 and making semi-annual coupon payments. The constant annual market reinvesting rate in the next 2 years is 8% (treat this reinvestment rate as simple interest rate).
(a) Compute the total future value of your investment, realized yield, and effective annual rate.
(b) If the market reinvesting rate in the next 2 years is 6%, compute the total future value of your investment, realized yield, and effective annual rate.
(c) If the market reinvesting rate in the next 2 years is 4%, compute the total future value of your investment, realized yield, and effective annual rate.
