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Consider a five-year, default-free bond with annual coupons of 4 % and a face value of $ 1 , 0 0 0 and assume zero-coupon

Consider a five-year, default-free bond with annual coupons of 4% and a face value of $1,000 and assume zero-coupon yields on default-free securities are as summarized in the following table:

Maturity

1 year

2 years

3 years

4 years

5 years

Zero-Coupon Yields

3.00%

3.30%

3.50%

3.70%

3.80%

a. What is the yield to maturity on this bond?

b. If the yield to maturity on this bond increased to 4.20%, what would the new price be?


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