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Suppose that you are considering investing in a four-year bond that has a face value of $1,000 and a coupon rate of 5.7%. a.) If
Suppose that you are considering investing in a four-year bond that has a face value of $1,000 and a coupon rate of 5.7%. a.) If the market interest rate on similar bonds is 5.7%, the price of the bond is $ (Round your response to the nearest cent.) The bond's current yield is %. (Round your response to two decimal places.) b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4.7%. The price of the bond will be $ (Round your response to the nearest cent.) The current yield will be %. (Round your response to two decimal places.) c.) Now suppose that one year has gone by since you bought the bond, and you have received the first coupon payment. The market interest rate on similar bonds is still 4.7%. The price of the bond another investor will be willing to pay is $ (Round your response to the nearest cent.) The rate of return on the bond was %. (Round your response to two decimal places.) If another investor had bought the bond a year ago for the amount that was calculated in (b), the rate of return would have been %. (Round your response to two decimal places.) d.) Now suppose that two years have gone by since you bought the bond and that you have received the first two coupon payments. At this point, the market interest rate on similar bonds unexpectedly rises to 9%. The price of the bond another investor will be willing to pay is $. (Round your response to the nearest cent.) The rate of return on the bond was %. (Round your response to two decimal places.) Suppose that another investor had bought the bond at the price you calculated in (c). The rate of return would have been %. (Round your response to two decimal places.)
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