Insurance company a buys a two-year bond at time zero


Insurance company A buys a two-year bond at time zero. The par value of the bond is 1000 Polish zloties (PLN), and the bond was purchased by company A at par. The buyer of the bond must pay 0.94% transaction cost at the time of purchase. The coupon amount of the bond is 5% of its par value. Company sells the bond at time 1, just after the coupon is paid, and at that time the market yield to maturity on this bond is 4%. Calculate the effective rate of interest the company earned on the bond from time 0 to time 1.

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Financial Management: Insurance company a buys a two-year bond at time zero
Reference No:- TGS02369046

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