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Assume you pay $4,000 for an old bond that was issued four years ago (you bought the bond from the first owner after four years).

Assume you pay $4,000 for an old bond that was issued four years ago (you bought the bond from the first owner after four years). The bond has a face value of $5,000 and pays an income of $100 (bond coupon) twice a year (the end of June and the end of December). The bond has a maturity date of 10 years from the time that it was originally issued (i.e., your investment ends at the end of year 6) . What is yournominal rate of return of this investment? What would the nominal rate of return for the original bond owner had been assuming he/she kept the bond?

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