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Consider a portfolio of bonds with the following characteristics: Bond A Term: 5 years Coupon rate: 2%; coupons are paid twice a year (i.e. semi-annual
Consider a portfolio of bonds with the following characteristics:
Bond A
Term: 5 years Coupon rate: 2%; coupons are paid twice a year (i.e. semi-annual compounding). Face value: $1,000 The current market price is $890. Bond B
Term: 5 years Coupon rate: 5%; coupons are paid twice a year (i.e. semi-annual compounding). Face value: $1,000 The current market price is $980. A portfolio of bonds investing 40% in bond A and 60% in bond B. Assume arbitrage-free conditions.
What is the bond portfolios YTM?
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