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Use the following data to answer the questions: 20-year Treasury Yield: 1.96% Spread over Treasury yield on AAA Corporate Bond: 50 bps Spread over Treasury

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Use the following data to answer the questions: 20-year Treasury Yield: 1.96% Spread over Treasury yield on AAA Corporate Bond: 50 bps Spread over Treasury yield on BAA Corporate Bond: 75 bps 1. What is the price of the three bonds if they each have a coupon rate of 5%, and 20 years to maturity? Assume $1000 face value. 2. If the Treasury yield goes up by 1%, but the spreads stay the same, what will be the new prices of each bond? Did the prices increase by the same percentage? 3. Suppose the yield stays at 1.96% and the spreads stay the same for the next year. What is the price of each bond at the end of the year? 4. Continuing #3, what is the return earned on each bond over the year

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