Evaluate the following substitution swap: You currently hold a 25-year 9.0 percent coupon bond
QUESTION
Evaluate the following substitution swap: You currently hold a 25-year, 9.0 percent coupon bond priced to yield 10.5 percent. As a swap candidate, you are considering a 25-year, Aa-rated, 9.0 percent coupon bond priced to yield 10.75 percent. (Assume a one-year work-out period and reinvestment at 10.5 percent.)
Current Bond
Candidate Bond
Dollar investment
____________
ANSWER:
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