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A 40-year maturity bond has a 9% coupon rate, paid annually. Itsells today for $1,057.42. A 30-year maturity bond has a 8.5%coupon rate, also paid annually. It sells today for $1,069.5. Abond market analyst forecasts that in five years, 35-year maturitybonds will sell at yields to maturity of 10% and that 25-yearmaturity bonds will sell at yields of 9.5%. Because the yield curveis upward-sloping, the analyst believes that coupons will beinvested in short-term securities at a rate of 8%.
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