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Consider a 2 - year, risk - free bond with a coupon rate of 5 % ( annual coupons ) and a face amount of
Consider a year, riskfree bond with a coupon rate of annual coupons and a face amount of $
a What is price of this bond if the YTM is
b If you buy the bond for $YTM hold it to maturity and you reinvest the coupon payment at what is the annual HPR on your investment?
c If you buy the bond for $YTM then the yield increases to and you sell the bond immediately after the first coupon payment in year what is your HPR
d If the yield on the bond is $
i What is the Macaulay duration?
ii If the yield increases to immediately, what does the duration approximation predict will be the percentage change in the bond price?
iii. If the yield increases to immediately, what is the actual percentage change in the bond price?
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