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A $100 bond with 4% coupon rate matures in 25 years. It bears semiannual coupons and...

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Finance

A $100 bond with 4%coupon rate matures in 25 years. It bears semiannual coupons and ispurchased for $117.50 to yield i(2).

A $100 bond with 5%coupon rate also matures in 25 years. It also bears semiannualcoupons, but is purchased for $135.00 to yieldi(2).

What isi(2)?

  1. Less than 1.75%

  2. At least 1.75%, butless than 2.25%

  3. At least 2.25%, butless than 2.75%

  4. At least 2.75%, butless than 3.25%

  5. 3.25% or more

Answer & Explanation Solved by verified expert
3.8 Ratings (771 Votes)
Bond 1 Face Value 100 Coupon Rate 4 per annum payable semiannually Purchase Price 1175 and Tenure 25 years or 25 x 2 50 halfyears SemiAnnual Coupons 004 x 100 x    See Answer
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Transcribed Image Text

A $100 bond with 4%coupon rate matures in 25 years. It bears semiannual coupons and ispurchased for $117.50 to yield i(2).A $100 bond with 5%coupon rate also matures in 25 years. It also bears semiannualcoupons, but is purchased for $135.00 to yieldi(2).What isi(2)?Less than 1.75%At least 1.75%, butless than 2.25%At least 2.25%, butless than 2.75%At least 2.75%, butless than 3.25%3.25% or more

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