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Assume you purchased a $1,000 face-value bond at face value with a 10% coupon rate and an initial yield of 5%. Now suppose in the
Assume you purchased a $1,000 face-value bond at face value with a 10% coupon rate and an initial yield of 5%. Now suppose in the second year of holding the bond, interest rates fall to 2.5%. Find the following information if the maturity on the bond is set for 4 years:
(a) market price of the bond in year two
(b) capital gains or losses on the bond if sold in year two
(c) return on the bond
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