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CH 8 Model 1 Effect of Reinvestment Rates
CH 8 Model 1 Effect of Reinvestment Rates
Inputs
Initial investment
Bond price
Bond coupon rate
Expected annual inflation rate
Remaining life of bond (years)
Reinvestment rate for first period
Reinvestment rate for remaining years
Length of first period (years)
Ordinary income tax rate
Capital gains tax rate
$100,000
$900
8.00%
3.00%
20
6.00%
5.00%
10
35.00%
15.00%
$111,111
9.09%
$273,489
5.16%
2.10%
$0
$2,889
$5,834
$8,837
$11,898
$142,700
$147,908
$153,200
$158,578
$0
$87
$175
$265
$357
$3,567
$3,698
$3,830
$3,964
ed interest income
Income tax
Paid
Period-end
Balance
$1,556
$1,586
$1,617
$1,648
$1,680
$2,804
$2,850
$2,896
$2,943
$2,889
$5,834
$8,837
$11,898
$15,019
$147,908
$153,200
$158,578
$164,044