Suppose the current yield on a one-year zero-coupon bond is 4%, while the yield on...
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Accounting
Suppose the current yield on a one-year zero-coupon bond is
4%,
while the yield on a five-year zero-coupon bond is
5%.
Neither bond has any risk of default. Suppose you plan to invest for one year. You will earn more over the year by investing in the five-year bond as long as its yield does not rise above what level? (Assume
$1
face value bond.)Hint: It is best not to round intermediate
calculationsmake
sure to carry at least four decimal places in intermediate calculations.
Note:
Assume annual compounding.
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