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1. Suppose the price of a consol that pays a coupon equal to $30 per year is $1000. a. What is the consol's yield to
1. Suppose the price of a consol that pays a coupon equal to $30 per year is $1000. a. What is the consol's yield to maturity? Now suppose people find out that there is a risk that their incomes will grow more slowly than they previously expected. b. What do you expect would happen to the consol's price? What do you expect would happen to its yield to maturity? Explain your answers. Specifically, draw demand and supply curves for the consol; explain why they move, or justify the directions of shifts. Suppose people learn that there is a risk that inflation will be higher in the future than they previously expected. c. What do you expect would happen to the conso's price? What do you expect would happen to its yield to maturity? Explain your answers
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