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Problem 1 You buy a 5-year bond with a coupon rate of 6% for $1000 (annual...

Problem 1

You buy a 5-year bond with a coupon rate of 6% for $1000 (annual coupons paid). One year later, you sell the bond. At that time, the yield curve (based on zero coupon bonds) is as follows:

T 1 2 3 4 5
rt% 5.50 6.50 7.25 7.75 8.00

a) What is the price of the bond in one year?

b) What is the capital gain/loss on the sale of the bond?

c) What is your return on this investment?

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jeff jeffy answered 2 years ago
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