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smgardy

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Please Explain.Richard purchases a bond, but is concerned about his coupon interest, reinvestment income, and capital gain. What is the total cash flow earned, assuming that a price of 816.54$, coupon of 4.5%, 4.00% year maturity, and a market interest rate of 10.2%.Answer=399.08
 
It does not tell you how long until it matures?? I believe this peice of information is crucial in answering the question.
 
Wait but if you have all of those pieces

PV
PMT
FV
I/Y

Can you calculate N??
 
I guess if it gave you PMT- 45, FV -1000, PV - 816.54, I- 4%, you could compute N (which comes out to about 23), but truthfully, IM not sure what the question is really asking. Maybe thats dumb, but Im a touch confused.
 
I think the question is asking what is the total cashflow from this bond. Including Reinvestment Income, Cap Gain, and Coupon Interest
 
what the hell is 4% year maturity....i don't think you posted the information properly.

If the bond has 4 years to maturity - I calculate a price of ~820 using the info u provided.

Let's assume the 816.54 price is correct and it is the purchase price.

His Capital gain would be 183.48.
His coupon income would be 180 (1000*.045*4)
His reinvestment income is 29.46 (when you reinvest each coupon at 10.2%)

His total CF based on my calculations is 392.9405
 
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