Assume, an investor purchases a 10-year, 6% annual coupon payment bond at $90 per $100 of par value. The investor receives a series of 10 coupon payments of $6 (per 100 of par value) for a total of $60, plus the redemption of principal ($100) at maturity. In addition to collecting the coupon interest and the principal, the investor has the opportunity to reinvest the cash flows.

Answer the following questions based on this information:

**26) If the investor buys the bond and holds it until maturity, which is least likely to contribute to their return?**

a) Principal payment b) Capital Gain c) Reinvestment of the coupon payment __________

**27) If the investor buys the bond and holds it until maturity which of the following sources of return is most likely exposed to interest rate risk?**

a) Reinvestment of coupon payments b) Capital Gain or loss c) Redemption of principal __________

**28) If the coupon payments are reinvested at 8%, per 100 of par value, what is the future value of the reinvested coupons at the end of the 10-year reinvestment period?**

a) $79.085 b) $86.919 c) $82.899 __________

**29) Based on your answer from #28, and assuming you receive par back at maturity, the total return for this investment at the end of 10 years is:**

a) $179.085 b) $186.919 c) $182.899 __________

**30) What would the realized rate of return (%) be on this investment?**

a) 7.582% b) 7.123% c) 7.349% __________

**31) Let’s assume the investor in this security decided to sell the bond after 4 years. What would be the future value of reinvested coupons at this point again remembering that the investor is reinvesting the 6% coupons at an interest rate of 8%.**

a) $26.248 b) $26.639 c) $27.037 __________

**32) If the investor sells the 10-year, 6% annual coupon bond after 4-years, assuming the coupons payments can be reinvested at 8% for its 10-year life, what would they realize in sale proceeds in year 4?**

a) $90.754 b) $100.000 c) $95.234 __________

**33) The total return from the sale of the bond after 4-years is:**

a) $127.037 b) $117.393 c) $117.791

**34) What would the realized rate of return (%) be on this investment, again remembering that it was sold in year 4?**

a) 8.999% b) 6.959% c) 6.869% __________

**35) In this example where the investor purchased the bond at $90 (discount price) and 4 years later sold the bond, the resulting gain or loss they incurred on the security is determined by comparing the sale price to the:**

a) Original purchase price b) Carrying Value c) Original purchase price plus the amortized amount of the premium __________

**36) An investor buys a 6% annual payment bond with 10 years to maturity. The bond has a YTM of 8% and is currently priced at $86.580 per 100 of par. What is the bond’s Macaulay Duration?**

a) 7.2469 years b) 7.8017 years c) 7.6151 years