SOA Exam FM Sample Question 427
Study guide: Exam FM-2
An investor has purchased an 18-year 7000 face amount bond with an annual coupon rate of 6% paid annually. The redemption value of the bond is 7500. The purchase price, P, results in an annual effective yield of i.
Upon receipt, each coupon payment is immediately reinvested in an account earning an annual effective rate of 5.70%. Immediately following the receipt of the last payment from the 18-year bond, the investor has earned an annual effective yield of 5.18% on the original investment of P.
Calculate i.
- A) 4.54%
- B) 4.56%
- C) 4.79%
- D) 4.91%
- E) 5.13%
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