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A bond matures in N years from today and pays k coupons per year at equal intervals. Let y denote the yield of the bond.

A bond matures in N years from today and pays k coupons per year at equal intervals.

Let y denote the yield of the bond.

a) Find a formula showing the relationship between the price of the bond and the yield. Explain your reasoning clearly and use this formula to prove that if the yield of a bond is equal to its coupon rate, then the price will be equal to the face value.

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