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You have been hired as an intern at a major investment firm. Your superior then gives you the following bonds to analyze. Corporate bond with
You have been hired as an intern at a major investment firm. Your superior then gives you the following bonds to analyze. Corporate bond with a face value of $1,000 that matures in 4 years with annual coupon rate of 4% and yield to maturity of 496. A. A risk-free bond that pays one coupon of $250 each year with a face value of $1,000 in 3 years. B. A zero-coupon bond with a face value of $5,000 that matures in one year with a yield to maturity of 20 %. C. The current on year interest rate is 1%. It is also known with certainty that the one-year risk- free rate will be 2% the following year, and 3% the year after. a. For each product, what is the purchase price? [3 points] b. The issuer of the zero-coupon bond told you that there is half probability that it only repay back $3,000 to the investors. What is the yield to maturity and the expected return on that bond? [3 points] Suppose you buy the Bond A today. After two years, the interest rates fall and the yield to maturity decreases to 2.5%. What would be your annualized holding period if you decide to sell the bond after two years? [3 points] c
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