You Purchase a High-Yield, Junk Bond for $1,000 That Pays

question 18

Essay

You purchase a high-yield, junk bond for $1,000 that pays $140 annually. After buying the bond, yields decline and you are able to reinvest the interest at only 9 percent. You reinvest all the interest payments. How much will you have when the bond is retired after twelve years? What was the annual return you earned on this investment?

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Definitions:

Direct Method

A way of preparing the cash flow statement where actual cash flow information from the company's operations is used, directly showing major classes of gross cash receipts and payments.

Statement Of Cash Flows

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Cash Receipts

The collection of money, including coins, notes, and electronic transactions, received by a business.

Equity Method

An accounting technique used by a company to record its investment in another company when it has significant influence over that company but not full control or ownership.