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ic= c/Pc where Pc = current price of the perpetuity c=yearly coupon payment ic= yield to maturity of the perpetuity g=rate of capital gain John
ic= c/Pc where Pc = current price of the perpetuity c=yearly coupon payment ic= yield to maturity of the perpetuity
g=rate of capital gain
John buys a bond at time t and sells it at time t+1. He calculates his rate of return to be R 3-6%, and C $25. Suppose that the relationship between the bond price at time t and t+1 is given by 0.90 P Pt-1. Find ic, g, Pt and P (Hint: find g first)Step by Step Solution
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