标题: Reinvestment Income [打印本页] 作者: toocfatoo 时间: 2011-7-13 07:37 标题: Reinvestment Income
XYZ purchases a 4-year, 6%, semiannual-pay Treasury note for $9,485. The security has a par value of $10,000. To realize a total dollar return equal to 7.515% (its yield to maturity), XYZ must have which of the following reinvestment assumptions?
A)
All payments must be reinvested at more than 7.515%.
B)
All payments must be reinvested at 7.515%.
C)
All payments must be reinvested at less than 7.515%.
Without doing the math the obvious ans is B (which is also the correct ans). However, if I do the math.... something doesn't match up
Total dollar return = 9485*(1.03)^8 - 9845 = 2530.31
Coupon payment + Gain on sec + Reinvestment Income = 2530.31
2400 + (10000-9485) + Reinvestment Income = 2530.31
Reinvestment Income = -385....
Is the solution wrong or am I wrong???作者: marsilni 时间: 2011-7-13 07:46
I believe the answer is C. The return will fall somewhere between the coupon rate and the ytm.作者: JRossSter 时间: 2011-7-13 07:56
Nevermind I am being an idiot.作者: homie 时间: 2011-7-13 08:05
To find the required dollar return you're supposed to use purchase price and required compound rate: 9485 * (1.0376)^8 = 12,740.7
Take away principal and coupon payments (10,000 + (300 * 8) = 12,400) to get RI
