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Consider the following bond purchased at $800 in 2018.
F=1000; C=100; N=5; P=800
a.
What is the yield to maturity? (This is equal to the market interest rate prevailing in
2018)
b. If the interest rate rises to 20% in 2019 what is the price of the bond?
(Solve the following equation: 0.2=(100+(1000-P)/5)/(1000+P)/2
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