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You bought a 25-year ABC bond that has a coupon rate of 9 percent and sells...

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Question

Finance

You bought a 25-year ABC bond that has a coupon rate of 9percent and sells at a yield to maturity of 8 percent. You holdthis bond for 1 year before selling.

a. If in one year the yield to maturity forthis bond is 10 percent, what is your rate of return?

b. What is your real rate of return if theinflation rate is 3%?

Answer & Explanation Solved by verified expert
4.2 Ratings (772 Votes)
face value 1000 Yield to maturityi 8 Coupon rate 9 Coupon Amount 10009 90 Years to maturity n 25 Bond price formula Coupon amount 1 11ini face    See Answer
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Transcribed Image Text

You bought a 25-year ABC bond that has a coupon rate of 9percent and sells at a yield to maturity of 8 percent. You holdthis bond for 1 year before selling.a. If in one year the yield to maturity forthis bond is 10 percent, what is your rate of return?b. What is your real rate of return if theinflation rate is 3%?

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