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A (zero coupon) bond gives you a 5% return the first year and 7% return the second and the third year. (5p) What is the

A (zero coupon) bond gives you a 5% return the first year and 7% return the second and the third year.

  1. (5p) What is the yield to maturity?
  2. (4p) Show (calculate and explain) how changed credit risk and changed (expected) inflation influences the value of the three-year bond.

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