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1. Suppose you buy a 10-year bond today for $1,050 and that the coupon rate is 7 percent paid semi-annually. After a year, the market
1. Suppose you buy a 10-year bond today for $1,050 and that the coupon rate is 7 percent paid semi-annually. After a year, the market interest rate increases to 8%, determine:
a) bond price
b) rate of return for the bond.
2. Which will you prefer to invest your $1,500:
a) a two year bond with interest rate of 9 percent
or
b) two one year bonds, Year 1, the bond will earn 8% and year 2 the second bond will earn 9%.
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