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Bond D: maturity 10 years, coupon 2%, price 96.0547, face value 100 Bond E: maturity 10 years, coupon 6.5%, price 135.2656, face value 100 Suppose...

Bond D: maturity 10 years, coupon 2%, price 96.0547, face value 100

Bond E: maturity 10 years, coupon 6.5%, price 135.2656, face value 100


Suppose your investment horizon is 9 years. You purchased 1 Bond D and E.

a) What is your annualized return (in %) at the end of year 9, assuming flat yield curve

and semi-annual coupon payments?

b) Suppose interest rate increased by 25 bp immediately after you purchased Bond E. What is your annualized return (in %) at the end of year 9, assuming flat yield curve and semi-annual coupon payments?

c) Suppose interest rate decreased by 25 bp immediately after you purchased Bond E. What is your annualized return (in %) at the end of year 9, assuming flat yield curve and semi-annual coupon payments?

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