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Two 10-year bonds with semi-annual coupons are identical in every respect except that one pays...

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Finance

Two 10-year bonds with semi-annual coupons are identical in every respect except that one pays a higher coupon rate than the other. Both bonds yield 6.0% (bond equivalent). The lower coupon rate is 5.0% (bond equivalent). The price (at issue) of the bond with the higher coupon rate is 1.25-times the price of the bond with the lower coupon rate. Find the higher coupon rate, expressed as a nominal annual rate compounded semiannually. a) 6.25% b) 7.3% c) 8.1% d) 9.4% e) 10.5%

How to get 8.1%

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