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Suppose you have a horizon date of 10 years and bought art 8-year, 8% coupon bond at par (F = $100) that pays coupons annually

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Suppose you have a horizon date of 10 years and bought art 8-year, 8% coupon bond at par (F = $100) that pays coupons annually and is callable at a call price of $110. Assume the yield curve is flat at an 8% yield and remains constant for three years. At the end of year 3. suppose the yield curve drops to 5%, and the issuer calls the bond. Assume you reinvest your investment funds in a new seven-year bond paying coupons annually, and the yield curve remains flat at 5%. What is your annual rate of return for the call period (first 3 years)? What is your annual rate for the 10-year period? How do your rates compare to the YTM when you purchased the bond

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