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Refer to the following information for Questions 2 through 4 . Storm bought a 2 - year T - bond with 3 % coupon and
Refer to the following information for Questions through
Storm bought a year Tbond with coupon and $ face value at the price of $
on Nov. when the bond was issued in the primary market. Storm plans on selling the bond in one year, and believes that the price of the bond next year will have the following probability distribution:
Assume that the coupon payment is paid once in a year, and that Storm sells the bond after she gets paid the first coupon payment.
If Storm sells the bond to Cyclops at the price of in Nov. and if Cyclops holds the bond up to its
maturity, what is the rate of return of Cyclops's investment in the Tbond?
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