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Problem 4 4A. Your Aunt Maude has found a $1,000 par, 13.5% annual coupon bond that...

Problem 4


4A. Your Aunt Maude has found a $1,000 par, 13.5% annual coupon bond that matures in 20 years which is currently selling for $1,298.00. If she buys this bond today, what is her expected rate of return? Stated in another way, what is the bond’s expected yield to maturity?


4B.Using your calculated expected rate of return from Problem 4a (above), will the expected price on Aunt Maude’s bond be higher or lower in one year? Support your answer briefly, Maude is waiting impatiently! NOTE: Without support, the answer will be considered incomplete and points will be deducted


4C. If Maude (Problem 4a) is unable to invest at the expected return (YTM), but she can reinvest at 4% annually, what will her realized rate of return be on the bond investment?

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