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Caterpillar Inc. has issued bonds with semi-annual coupon payments on a coupon rate of 8.50% p.a. The bonds will mature in 6 years' time

 

Caterpillar Inc. has issued bonds with semi-annual coupon payments on a coupon rate of 8.50% p.a. The bonds will mature in 6 years' time and have a principal amount of $1,000. These are priced using a yield of 12% p.a. compounded semi-annually. Suppose the yield rose immediately to 14% p.a. compounded semi- annually. Which of the following would describe the change in the price of this bond? Your response must be entered as a positive (increase) or negative (decrease) numerical value with 2 decimal places and excluding the dollar sign ($).

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Answer The price of the bond would decrease by 13333 Explanation The reason for this is that when the yield goes up it means that investors are demand... blur-text-image

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