Exhibit 16-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 63

Multiple Choice

Exhibit 16-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The following information is given concerning a substitution swap: You currently hold a 15 year, 7% coupon bond priced to yield 8%. As a swap candidate you are considering a 15 year, 7% coupon bond priced to yield 8.5%. Assume a reinvestment rate of 8.5%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline \text { Dollar Investment } & \$ 913.54 & ? \\\text { Coupon } & 70.00 & 70.00 \\\text { i on One Coupon } & 1.487 & 1.487 \\\text { Principal Value at Year End } & 916.68 & 878.55 \\\text { Total Accrued } & 988.17 & 950.04 \\\text { Total Gain } & 74.63 & ? \\\text { Gain per Invested Dollar } & ? & ? \\\text { Realized Compound Yield } & ? & ?\end{array}$
-Refer to Exhibit 16-2. The realized compound yield on the current bond is

• A) 15.50%
• B) 11.03%
• C) 10.30%
• D) 8.01%
• E) 9.00%

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