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A 5-year maturity mortgage-backed bond is issued. The bond is a zero-coupon bond that promises to pay $10,000 (par) after 5 years. At initial issue,
A 5-year maturity mortgage-backed bond is issued. The bond is a zero-coupon bond that promises to pay $10,000 (par) after 5 years. At initial issue, bond market investors require a 4 percent interest rate return on the bond. You buy the bond but decide to sell after holding it for two years, at which time bond market investors are requiring a 7 percent interest rate return. What price did you pay and what is your selling price?
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