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Due to continued higher than expected inflation, suppose the Federal Reserve announces by the end of December 2022 that in the first couple of months
Due to continued higher than expected inflation, suppose the Federal Reserve announces by the end of December 2022 that in the first couple of months of 2023, they will keep raising interest rates at the rate of full 1 percentage point at a time, which is a rate higher than what market currently expects. Explain how this announcement would affect prices and yield to maturity of current bonds in the market.
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