Question
Today (June 12, 2015) Mark purchases for $929.08 the following government bond: maturity = 4 years, face value = $1,000, coupon rate = 3% (paid
Today (June 12, 2015) Mark purchases for $929.08 the following government bond: maturity = 4 years, face value = $1,000, coupon rate = 3% (paid annually). The first coupon payment will be received a year from now (i.e. June 12, 2016). The yield to maturity offered by equally risky bonds is currently 5%. Such a yield to maturity stays constant over the next two years. On June 12, 2017, just after receiving the second coupon payment, Mark decides to sell this bond. It turns out that, on that day, the new yield to maturity offered by equally risky bonds is 2%.
At what price will Mark be able to sell his bond?
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