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If you buy a 5-year, 4% coupon, annual pay bond at a yield of 3.5%, hold it for 3 years while reinvesting the coupon payments at 2.

If you buy a 5-year, 4% coupon, annual pay bond at a yield of 3.5%, hold it for 3 years while reinvesting the coupon payments at 2.5%, and then sell it when the yield on the 2-year bond is 4%, your annual HPR is

  1. a. Less than 2.5%
  2. b. More than 3.5%
  3. c. Between 2.5% and 3.5%
  4. d. Not enough information to tell 

Top Answer

b. More than 3.5% [the yield on... View the full answer

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