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Can you help with this problem? Thanks! Problem 1. Bond Pricing {1 point]. Suppose the interest rate is 4% and is expected to stay at
Can you help with this problem? Thanks!
Problem 1. Bond Pricing {1 point]. Suppose the interest rate is 4% and is expected to stay at 4% forever. On January 1, 21313, the government issued a Tyear bond, 1which pays coupons of 4 cents every year on January 1 {starting in W19] and then pays 1 dollar (in addition to the 4ceut coupon] on January 1 ofthe year Elg + T. a. Use the preseutrvalue formula compute what the market price of the bond should he. How does it depend on T? Explain. h. Suppose that after the bond has been issued, market conditions change and interest rates fall to 3%, and are expected to remain at 3% forever. What is the market price of the bond now? How does it depend on T? ExplainStep by Step Solution
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