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Answer: 0.82%
## Explanation The bond's net return factors in its price change, coupons paid, and financing costs over the period. The calculation involves several steps: ### Step 1: Reinvest the first coupon - Coupon received on September 30: BRL 27,500 - Reinvestment rate: 3.0% from September 30 to December 31 - Future value of first coupon: `27,500 × (1 + 3.0%) = 28,325` ### Step 2: Calculate financing cost - Purchase price: BRL 1,062,500 - Financing cost: 3.5% - Total financing cost: `1,062,500 × 3.5% = 37,187.50` ### Step 3: Calculate net return for the 6-month period - Closing price: BRL 1,048,200 - Purchase price: BRL 1,062,500 - Price change: `1,048,200 - 1,062,500 = -14,300` - Second coupon: BRL 27,500 - Future value of first coupon: BRL 28,325 - Total cash flows: `-14,300 + 27,500 + 28,325 - 37,187.50 = 4,337.50` - Net return: `4,337.50 / 1,062,500 = 0.4082%` ### Step 4: Annualize using semi-annual compounding - 6-month return: 0.4082% - Annualized return: `0.4082% × 2 = 0.8165% ≈ 0.82%` The calculation properly accounts for all cash flows including price appreciation/depreciation, coupon payments, reinvestment of coupons, and financing costs to arrive at the correct net return.
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A performance analyst at an asset management firm is measuring the returns of individual positions in a fixed-income portfolio. Details regarding the performance of a specific bond over a recent 6-month period are as follows:
What was the net return earned on the bond over the period from July 1 through December 31, annualized using semi-annual compounding?
A
−2.26%
B
0.82%
C
3.91%
D
7.82%
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