Assume That You Purchase a Three-Year, $1,000 Par Value Bond

question 18

Multiple Choice

Assume that you purchase a three-year, $1,000 par value bond, with an 8 percent coupon and a yield of 10 percent. After you purchase the bond, one-year interest rates are as follows: year 1 = 10 percent, year 2 = 8 percent, year 3 = 6 percent (these are the reinvestment rates) . Calculate the realized horizon yield if you hold the bond to maturity. Interest is paid annually.

• A) 8.37 percent
• B) 7.28 percent
• C) 9.76 percent
• D) 10.67 percent
• E) 14.0 percent

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Definitions:

Autonomic Changes

Physiological adjustments made by the autonomic nervous system, controlling involuntary body functions in response to physical or psychological stress.

Parasympathetic Nervous System

A division of the autonomic nervous system responsible for rest and digestion, counterbalancing the sympathetic nervous system.

Somatic Nervous System

The part of the peripheral nervous system that handles voluntary control of body movements via skeletal muscles.

Peripheral Nervous System

The part of the nervous system outside the brain and spinal cord, including the nerves and ganglia.