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  3. compute the rate of returns from holding each of t

Compute the rate of returns from holding each of the bonds below from period t...

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Finance

Compute the rate of returns from holding each of the bonds below from period t to t+1 given the following scenario: At period t, the yield to maturity is 20% and is expected to stay the same forever. However, the Fed unexpectedly reduces the interest rate. The yield to maturity becomes 10% at period t+1 and is expected to prevail forever. (Hint: You need to calculate the prices of bonds at period t and t+1.)

  1. A consol with a yearly coupon payment of $200.
  2. A twoyear coupon bond with a coupon rate of 20% and face value of $1000.
  3. A three-year coupon bond with a coupon rate of 20% and face value of $1000.

Please answer all of the parts as well as explain the steps/answers.

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