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On May 3 0 , 2 0 1 2 , Janice Kerr is considering one of the newly issued 1 0 - year AAA corporate
On May Janice Kerr is considering one of the newly issued year AAA corporate
bonds shown in the following exhibit.
a Suppose that market interest rates decline by basis points ie Contrast the effect of
this decline on the price of each bond.
b Should Kerr prefer the Colina over the Sentinal bond when rates are expected to rise or to fall?
c What would be the effect, if any, of an increase in the volatility of interest rates on the prices
of each bond?
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