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A 10-year government bond has a face value of $100 and a coupon rate of 5% paid annually. The interest rate (yield to maturity) is
A 10-year government bond has a face value of $100 and a coupon rate of 5% paid annually. The interest rate (yield to maturity) is equal to 6% per year. Required: (a) Calculate the price of the bond. (5 marks) (b) Assume that the coupon payments are made semiannually. Calculate the new price of the bond. (5 marks) (c) Briefly discuss the impact of an increase in the interest rate in the price of the bond. (5 marks) (d) Discuss your expectation about bond price relative to its face value in case the yield to maturity would be lower than the coupon rate. (5 marks
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