Exhibit 16-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 8

Multiple Choice

Exhibit 16-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20 year, Aa 8% coupon bond priced to yield 10%. As a swap candidate you are considering a 20 year, Aa 10% coupon bond priced to yield 10.75%. Assume a reinvestment rate of 12.00%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline\text { Dollar Investment } & \$ 828.41 & \$ 938.83 \\\text { Coupon } & 80.00 & 100.00 \\\text { i on One Coupon } & 2.4 & ? \\\text { Principal Value at Year End } & 831.32 & ? \\\text { Total Accrued } & 913.72 & ? \\\text { Realized Compound Yield } & 10.5547 & ?\end{array}$
-Refer to Exhibit 16-3. The interest on one coupon for the candidate bond is

• A) $2.40
• B) $2.75
• C) $9.60
• D) $11.00
• E) $50.00

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Definitions:

Thorn Trees

Trees characterized by sharp, pointed spines or thorns on their branches or around their trunks, often found in arid or semi-arid climates.

Semidesert

A dry area that has slightly more rainfall than a desert, which supports a sparse vegetation cover.

Dry Spells

Periods of below-average precipitation in a specific area, leading to prolonged dry conditions that can impact water supply, agriculture, and natural ecosystems.

Broadleaf Foliage

Leaves that are broad and flat, characteristic of deciduous trees and a variety of plants, contrasting with needle-like or scaled foliage in conifers.