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Question 2. You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate
Question 2. You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 9% a. Do you expect the bond price to change in the future when the yield stays at 9%? Why or why not? Explain. (No computations are required to answer this part of the question.) (2 marks) b. Calculate what the bond price would be in one year if its yield to maturity stays at 9%. (2 marks) c. Find the before-tax holding-period return for a one-year investment period if the bond sells at a yield to maturity of 7% by the end of the year (year 1). (2 marks)
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