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Question 7 You are asked to invest $100,000 in two types of bonds for a client. Bi is a government bond that has a yield
Question 7 You are asked to invest $100,000 in two types of bonds for a client. Bi is a government bond that has a yield to maturity of 3% per year APR and sells at 100. B, is a highly rated bond that has a yield to maturity of 5% per year and sells at 95. Both bonds mature in five years time. The client wants an overall yield to maturity of 4% per year over the next five years. (i) Write down the equations for the amount of money to be invested in each of B, and B2. (ii) Will you buy more bonds of (B1) or (B2)? (Circle one) Suppose A and B are two bonds with the same time to maturity. If the coupon rate of A is higher than that of B (A > Tb), then Is the price of A higher than the price of B? Yes or No (Circle one). (iii) Yes or (iv) Is the Macaulay duration of A higher than the Macaulay duration of B? No (Circle one)
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