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Compare the return of the consol to return of coupon bond

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Reference no: EM132795047

a. A coupon bond pays $100 per year with 1000 price. What is the return of the bond for one year if the YTM was initially 10% and increased at the end of year to 5%?

b. A consol (perpetuity) that pays $100 per year with 1000 price. What is the return of the bond for one year if the YTM was initially 10% and increased at the end of year to 5%?

c. Compare the return of the consol to the return of coupon bond and explain why there is a difference between the two returns.

Reference no: EM132795047

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