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You own a bond that pays $100 in annual interest, with a $1000 par value. It matures in 9 years. The markets required yield to
You own a bond that pays $100 in annual interest, with a $1000 par value. It matures in 9 years. The markets required yield to maturity on a comparable risk bond is 15%.
A- Calculate the value of the bond.
B- How does the value change if the yield to maturity on a comparable risk bond increase to 17% or decreases to 8%?
C- Explain the implications of your answer in part B as they relate to interest rate risk, premium bonds, and discount bonds.
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