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A bond has a time to maturity of two years, has a coupon rate of 2% paid annually and has a face value of 100.

  1. A bond has a time to maturity of two years, has a coupon rate of 2% paid annually and has a face value of 100. The bond is trading at a Yield To Maturity (YTM) of 3%.

    1. Compute the fair price and duration of the bond

    2. You hold the bond for one year. After one year, the YTM is now 5%. Re- price the bond. Compute the Rate of Return (ROR) from the position vs the bond price in part i. Discuss your result.

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