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Two 2 0 - year maturity mortgage - backed bonds are issued. The first bond has a par value of $ 1 0 , 0
Two year maturity mortgagebacked bonds are issued. The first bond has a par value of $ and promises to pay a percent annual coupon, while the second is a zero coupon bond that promises to pay $par after years, with interest accruing at percent. At issue, bond market investors require a percent interest rate on both bonds.
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a What is the initial price on each bond?
b Now assume that both bonds promise interest at percent, compounded semiannually. What will be the initial price for each bond?
c If market interest rates fall to percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in astate both as a percentage of par value and actual dollar value
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What is the initial price on each bond?
Note: Do not round intermediate calculations. Round your final answers to decimal places.
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