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Apply the appropriate mathematical model

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Reference no: EM132828197

Consider a 14-year bond with face value $1,000 that pays a 7.4% coupon semi-annually and has a yield-to-maturity of 6.8%. What is the approximate percentage change in the price of bond if interest rates in the economy are expected to decrease by 0.60% per year? Submit your answer as a percentage and round to two decimal places. (Hint: What is the expected price of the bond before and after the change in interest rates?)

-(i) Describe and interpret the assumptions related to the problem.

-(ii) Apply the appropriate mathematical model to solve the problem.

-(iii) Calculate the correct solution to the problem.

Reference no: EM132828197

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