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A 1 0 0 0 par value bond with coupons of 6 % payable annually is redeemable at par in 2 0 years, but it
A par value bond with coupons of payable annually is redeemable at par in years, but it is callable any time from the end of
the th year at
Based on an investors desired yield rate, the investor calculates the
following potential purchase prices:
Assuming the bond is called at the end of the th year, the purchase
price is
Assuming the bond is held until maturity, the purchase price is
The investor buys the bond at the highest price that guarantees that
the investor will receive at least the desired yield rate.
The investor holds the bond for years, at which time the bond is
called. Calculate the annual effective yield rate the the investor earns.
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