Use the Following Information for Questions

question 37

Multiple Choice

Use the following information for questions
A bank has a planned 2-year investment horizon. It is considering investing $1,000 in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%.
-What will be the realized compound yield if the bank invests in the 2-year security and holds it until maturity?

• A) 4.00%
• B) 5.48%
• C) 5.94%
• D) 6.01%
• E) 6.85%

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