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3 . A 2 0 - year maturity, 1 0 % semiannual coupon, has a yield of 4 % . If the interest rate were

3 .

20 -

year maturity,

10 %

semiannual coupon, has a yield of

4 % .

If the interest rate were to fall

125

basis points, what is your predicted new price for the bond

(

including convexity

) ? (2

points

)

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