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QUESTION 3. Suppose you hold a 6.5 percent coupon bond with a par value of 1,000 that matures in 14 years and pays semi-annual coupons.
QUESTION 3. Suppose you hold a 6.5 percent coupon bond with a par value of 1,000 that matures in 14 years and pays semi-annual coupons. 1) If the yield to maturity is currently 7.2 percent, what is the bond's value? (10 points) 2) You believe that in one year, the yield to maturity will be 6.8 percent. a. Will the bond price increase or decrease from its current market value? Explain why. (No calculations required) (5 points) b. Will the bond price be higher or lower than 1,000? Explain why. (No calculations required). (5 points) 3) If you hold the bond for the entire year and the change in yield to maturity occurs, what would be your total return in euros and percentage? (10 points)
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