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1. Suppose you buy a seven-year zero-coupon Treasury bond, with a face value of $1000, at a price or $600. Answer the following questions: (a)
1. Suppose you buy a seven-year zero-coupon Treasury bond, with a face value of $1000, at a price or $600. Answer the following questions: (a) What is the yield to maturity (YTM) on the bond? (assume annual compounding) (b) Suppose that, in year t = 1, the YTM of the bond increases to 10% and remains equal to 10% until year t = 7. i. Calculate your annualized holding period return if you buy the bond in year t= 0 and sell it in year t=1. ii. Calculate the annualized holding period return if you buy the bond in year t= 1 and sell it in year t = 7. iii. Calculate your annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 2
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