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Problem 16-20 A 30-year maturity bond has a 74% coupon rate, paid annually. It sells today for $879.92. A 20-year maturity bond has a 6.9%
Problem 16-20 A 30-year maturity bond has a 74% coupon rate, paid annually. It sells today for $879.92. A 20-year maturity bond has a 6.9% coupon rate, also paid annually. It sells today for $888.1. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 8.4% and 15-year maturity bonds will sell at yields of 7.9%. Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 4.2%. a. Calculate the (annualized) expected rate of return of the 30-year bond over the 5-year period. (Round your answer to 2 decimal places.) 30-year bond b. What is the (annualized) expected return of the 20-year bond? (Round your answer to 2 decimal places.) 20-year bond
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