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Find the realized rate of return on the bond

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Reference no: EM132779957

Use the annuity approach to bond valuation for the following questions.

(a) Find the price of a 12%, 3-year coupon bond with face value equal to $1000 when the market interest rate is 10%.

(b) Does this bond sell at a premium, a discount or at par? Explain.

(c) After one year, the bond is sold when the market interest rate on two-year bonds equals 11%. Find the new price of the (now) two-year bond.

(d) Find the realized rate of return (holding period yield) on the bond for the original buyer.

Reference no: EM132779957

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