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A firm will issue a new 10-year semiannual coupon bond with a coupon rate set...

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Finance

  1. A firm will issue a new 10-year semiannual coupon bond with a coupon rate set such that the bond sells at par. The firm already has an 8-year 8% semiannual coupon bond outstanding, selling for $1,125. What will be the annualized return of an investment strategy where one buys the new bond today and sells it after three years when the market interest rates (YTM) will have declined by 2.5% points?

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