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Lenora current holds a 10-year maturity bond. She decides to sell her bond at the end of her investment horizon, which is before the maturity

  1. Lenora current holds a 10-year maturity bond. She decides to sell her bond at the end of her investment horizon, which is before the maturity of the bond. The bond has a Macaulay duration of 7 years. Based on the What-if analysis results presented in the table below, does coupon reinvestment risk matter more to Lenora, or market price risk matters more, or almost no interest rate risk to Lenora over her investment horizon?

Is Lenoras investment horizon longer than the 7 years, less than 7 years, or equal to 7 years? Please explain your answers. [5 Marks]

Lenoras bond

YTM (%)

FV of reinvested coupon until end of investment horizon

Bond's price if sold at the end of investment horizon

FV of reinvested coupon plus sale price of bond

Scenario 1

9.00%

$104.17

$99.08

$203.25

Scenario 2

6.00%

$91.93

$101.89

$193.82

Scenario 3

12.00%

$123.33

$95.58

$218.90

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