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A 30-year maturity bond has a 7% coupon rate, paid annually. It sells today for $1,047.42. A 20-year maturity bond has a 6.5% coupon rate, also paid annually. It sells today for $1,059.5. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 8% and that 15-year maturity bonds will sell at yields of 7.5%. Because the yield curve is upward-sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 6%.
a. Calculate the expected rate of return of the 30-year bond over the five-year period. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the expected return of the 20-year bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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