Name and describe the two sources of interest rate risk. If an investor has a...
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Name and describe the two sources of interest rate risk. If an investor has a desired investment horizon (or holding period) of 5 years, and is invested in 20-year 6% coupon bonds priced to yield 6%, what bet is he or she making about the direction of interest rates? Compute the 5-year holding period yield assuming that interest rates rise to 8% immediately after the bond is purchased. Explain how this investor could immunize against interest rate risk.
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