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Wells and Newera both have bond issues outstanding. The Wells issue has annual interest payments of $50 and it matures in 25 years. The Newera

Wells and Newera both have bond issues outstanding. The Wells issue has annual interest payments of $50 and it matures in 25 years. The Newera bond also has annual interest payments of $50, but it matures in 2 years. The market rate of interest is currently 3%.

a) What is the difference in the market values of the two bonds? (10 pts)

b) If market interest rates fall to 2.5% over the next year, compute the rate of return on the Wells bond?

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