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1 2 . Suppose A - rated bonds were trading in the market at a YTM of 1 0 % on all maturities, and you
Suppose Arated bonds were trading in the market at a YTM of on all maturities, and you bought an Arated, year, coupon bond with face value of $ and annual coupon payments. Suppose that immediately after you bought the bond the yield on such bonds dropped to on all maturities and remains there until you sold the bond at your horizon date at the end of four years.
a What price did you pay for the year, coupon bond?
b Show in a flow matrix the coupons you received on the bond and their values at your horizon date from reinvesting.
c What is the price of the original year bond at your horizon date?
d What is your horizon date value and total return?
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