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3. [15] A corporation issues a 10-year coupon bond with face value $ 1000 and coupon rate 5%. An investor A purchases this bond with
3. [15] A corporation issues a 10-year coupon bond with face value $ 1000 and coupon rate 5%. An investor A purchases this bond with YTM at 4%. Immediately after the purchase, this investor keeps the coupons but sells the strip bond (zero coupon bond) to another investor whose desired YTM is 6%. (a) [5] Determine the price of the strip bond. (b) [5] Determine the price of the coupon bond. (c) [5] Determine the overall period rate for the investor A. (Note that the investor buys a bond and sells the strip bond. The overall period rate is the rate that corresponds to this stream of cash flow such that income equals the expenditure.)
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