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Question:
A 3-year, 6% coupon, semiannual-pay note has a yield to maturity of 5.5%. If an investor holds this note to maturity and earns a 4.5% return on reinvested coupon income, his realized yield on the note is closest to:
A
5.46%.
explanation
This question does not require calculations. Because the return on reinvested coupon interest is less than the note’s yield to maturity, the investor’s realized yield on the note must be less than the YTM.
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