00:01
To calculate the future value of the reinvested coupon payments at the end of the holding period, we need to first determine the annual coupon payment.
00:08
The coupon payment is equal to the par value, which is 100, times the coupon rate, which is 7%, or 0 .07, and so the coupon payment is 7.
00:22
The investor will receive 7 per year for the first five years, and these coupon payments can be reinvested at the new interest rate of 8%.
00:30
So the future value of each coupon payment can be calculated using, the formula for future value of a single sum, which is the coupon payment plus one plus the interest rate to the number of years until the end of the holding period.
00:45
And we need to calculate the future value of each of the five coupon payments at the end of the holding period, which is year five.
00:52
So the future value for year one would be seven.
00:59
Let me know what the formula this is multiplying.
01:03
7 times 1 plus 0 .08 to the fourth.
01:10
Future value 2 would be 7 times 1 plus 0 .08 to the third because this is received at the end of year 2, so it's going to be reinvested for three years...