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Suppose that a bond with an 8% coupon rate and semiannual coupons has a face value of $1,000, 10 years to maturity. The required rate
Suppose that a bond with an 8% coupon rate and semiannual coupons has a face value of $1,000, 10 years to maturity. The required rate (Yield to Maturity, YTM) is 5%. a. Draw a timeline to identify the amount and timing of cash flows obtained with the bond and calculate the bond value. (15 marks) b. Redo part (a) if YTM is 10%. Next, use the results of parts (a) and (b) to show the relationship among YTM, coupon rate and bond value. (15 marks)
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