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(a) John has just bought an 8% bond that pays semi-annual coupons with $1,000 face value and 8 years to maturity. i) If the yield

(a) John has just bought an 8% bond that pays semi-annual coupons with $1,000 face value and 8 years to maturity.

  1. i) If the yield (APR) of the bond was 10%, what was its purchase price? (3 marks)

  2. ii) If the bond's YTM (APR) drops to 6% one year later and John sells it immediately after receiving the coupon, calculate the capital gains yield. (5 marks)

iii) Couldthetotalyieldbecomputedasthesumofthecurrentyieldandthecapitalgainsyield? Explain. (3 marks)

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