Explain the problem of adverse selection

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1. Explain the problem of adverse selection created by asymmetric flow of information. Use an example to illustrate your answer.

2. Consider a coupon bond which has a $1,000 par value and a coupon rate of 20%. The bond is currently selling for $2,300 and has 16 years to maturity. Calculate the bond's yield to maturity.

Reference no: EM132817960

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