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Q4 Suppose you purchase a ten-year bond with 6 percent annual coupons. You hold the bond for four years, and sell it immediately after receiving
Q4 Suppose you purchase a ten-year bond with 6 percent annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bonds yield to maturity was 4.5% when you purchased and 7% when you sold the bond. What is your annual rate of return on the bond in each of the following situations: a) All coupons were immediately spent when received. b) All coupons were reinvested in a bank account, which pays 2 percent interest until the bond is sold.
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