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1.A coupon bond has a face value of $1000, a coupon rate of 10% and two years to maturity. You buy it at par at

1.A coupon bond has a face value of $1000, a coupon rate of 10% and two years to maturity. You buy it at par at issue (2 years to maturity) and sell it after 1 year. If interest rates after one year are now 12%, what is your rate of return?

2.Use a supply and demand for bonds graph to explain the effect of increased wealth on interest rates.

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