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Consider a 3 0 - year, 7 . 5 % annual coupon bond. One year ago this bond sold for $ 1 , 0 9
Consider a year, annual coupon bond. One year ago this bond sold for $ at issuance, but over the last year interest rates have dropped one percentage point.
Today one year after the bond was issued you buy the bond. You plan to hold the bond for three years. You also strongly believe that within the next few months interest rates will drop one percentage point and then remain steady for the remainder of your planned threeyear holding period.
What is the total return you expect to earn by holding this bond for three years.
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