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You are confident that interest rates are going to fall 2 percentage points across the board between today and next year. Your grandma just gave
You are confident that interest rates are going to fall 2 percentage points across the board between today and next year. Your grandma just gave you \$10,000 for next year's tuition. The yield to maturity on a 1-year discount bond is 5% and has a FV of $10,000. The yield to maturity on a 10-year discount bond is 3% and has a FV of $10,000. Answer the questions below. a. What does the 1-year bond pay in a year? b. What does the 10-year bond pay in 10 years? c. What is the price of the 1 year bond? d. What is the price of the 10 year bond? e. What is the 10 year bond worth a year from now if interest rates fall as you predict? f. Which bond should you buy
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