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Assume that a $1,000 bond with 17 years to maturity has a 4.8% coupon rate and that coupons are paid semiannually. the price of the
Assume that a $1,000 bond with 17 years to maturity has a 4.8% coupon rate and that coupons are paid semiannually. the price of the bond assuming a 6% current market yield using the bond pricing formula. Now assume you buy the bond in today at the calculated price and then you sell it in 6 years when bond yields are 2% below the current yield to maturity. What will be the price of the bond (using the bond pricing formula) and what will be the realized annual yield you earned over the 6-year period? Explain the results.
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