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Zero coupon bond

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Reference no: EM131909633

Consider a 17-year zero coupon bond.

A. Plot the value of the bond P(y) for yields ranging from 0% to 30%. [2 points]

B. Add to the graph the price of the same bond after 12 years have passed (i.e. it will be a 5-year zero coupon bond). [2 points]

C. Using your graph, explain what happens through time (at any given yield) to:

a. The bond’s price

b. The bond’s interest rate risk

c. The bond’s convexity.

Reference no: EM131909633

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