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Four years ago, Candy Land Corp. issued a bond with a 14% coupon rate, semi-annual coupon payments, $1,000 face value, and 14-years until maturity.
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a) You bought this bond three years ago (right after the bond made its coupon payment) when the yield-to-
maturity was 10%. How much did you pay for the bond?
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b) The current yield-to-maturity is 15%. If you sell the bond today (next coupon payment is in 6 months from
today), after having owned it for three years, what would be your capital gain/loss yield? Remember, the capital
gain/loss yield is the return resulting from price changes of your investment.
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c) Suppose two years from now (right after the bond made its coupon payment) the bond has a value of $1,154.
What would be the yield-to-maturity of the bond (APR, semi-annually compounded)? Use Excel or a financial calculator to solve this question.
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