Consider the following two bonds: a 5-year and a 10-year bond, each with a 7%...
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Accounting
Consider the following two bonds: a 5-year and a 10-year bond, each with a 7% coupon. Both bonds currently sell at par and coupon payments are made annually (i.e., one coupon payment per year). (a) Which bond do you expect to have a greater percentage change in price if interest rates change? Explain why. (5 points) Suppose you buy the 10-year bond. One year later, interest rates increase to 9%. (b) What will be the new price of the bond? (15 points) (c) What rate of return would you have earned on the bond? (10 points)
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