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You just purchased a 19.5% coupon bond with a face value of $100 that pays annual coupons and matures in 5 years. If you decide

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You just purchased a 19.5% coupon bond with a face value of $100 that pays annual coupons and matures in 5 years. If you decide to sell the bond right after you receive the second coupon, what is the annualized return on your investment? Assume that (i) the yield curve is flat at 5% when you purchase and while you hold the bond, but the yield curve unexpectedly jumps to 6% for all maturities on the day you sell the bond, (ii) you reinvest all your coupons, and (iii) interest is compounded annually. \begin{tabular}{l} \hline 5% \\ \hline 8% \\ \hline 8.16% \\ \hline 3.71% \\ \hline 4% \end{tabular}

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