(12 points total see below) Imagine that you purchased a $1000 face, 4.5% annual...
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(12 points total see below) Imagine that you purchased a $1000 face, 4.5% annual coupon bond with 8 years to maturity. At the time of purchase, interest rates for bonds like this were 4%. But they day after you purchased, they changed to 3.8% and stayed constant. a. (3 points) What was your current or coupon yield in the first year? b. (3 points) What was your capital gains yield in the first year? c. (6 points) If interest rates remained unchanged (from the 3.8%) and you sold the bond 3 years after original purchase for a fair price, what annual rate of return did you earn on the investment?
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