Problem
Contributed by Meenakshi Sundaram, Tennessee Tech University
Mike buys a corporate bond with a face value of $1000 for $900. The bond matures in 10 years and pays a coupon interest rate of 6%. Interest is paid every quarter.
(a) Determine the effective rate of return if Mike holds the bond to maturity.
(b) What effective interest rate will Mike get if he keeps the bond for only 5 years and sells it for $950?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.