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a) What is the value of a 10-year, $1,000 par value bond with a 10% coupon paid semi-annually if its required rate of return is 10%?
b) What would its value be if, just after it had been issued, the expected inflation rate rose by 3% causing investors to require a 13% return? Would it become a discount or premium bond?
c) What would its value be if, just after it had been issued, the expected inflation rate declined and investors require a 7% return? Would it become a discount or premium bond?
d) Suppose a 10-year, 10% semi annual coupon bond with a par value of $1,000 is currently selling for $1,135.90 producing a nominal YTM of 8%. However, the bond can be called after 5 years for a price of $1,050. What is its nominal YTC?
Which statement about bond prices is most accurate?
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