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You bought a bond five years ago for $935 per bond The bond is now selling for $980. It also paid $75 in interest per year which you reinvested in the bond Calculate the realized rate of return

You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also paid $75 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. ( LG 3-1 )

( LG 3-1 )

In Chapter 2 , we presented a general discussion of interest rates and how they are determined. The term interest rates can actually have many different meanings depending on the time frame used for analysis and the type of security being analyzed. In this chapter, we start off by defining the different interest rate measures employed in the valuation of financial securities by market participants. These definitions are summarized in Table 3–1 . In the body of the chapter we apply these rates to the valuation of bonds (bond markets and their operations are discussed in detail in Chapter 6 ) and the valuation of stocks (stock markets and their operations are discussed in Chapter 8 ).

May 18 2020 View more View Less

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