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Suppose you buy Bond A at time=0. It is a 2-year, risk-free bond with coupon rate of 7% that compounds annually, and it has

Suppose you buy Bond A at time=0. It is a 2-year, risk-free bond with coupon rate of 7% that compounds annually, and it has a face value of $1,000. (3 points) a) At time = 0, suppose you buy Bond A for $960. You reinvest the coupon payment at 7%, and you hold Bond A until its maturity. What is the annualized return you earn on your investment in Bond A? [Hint: Find the return over two years and annualize it.] (3 points) b) At time = 0, suppose you buy Bond A for $1000. At t=1, you sell the bond immediately after the first coupon payment. At t=1, before you sell the bond, ytm on all bonds increases to 9% and stays at that level for all bonds. What is the annualized return you earn on your investment in Bond A at t=1?

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a To calculate the annualized return on your investment in Bond A we need to determine the total return over the twoyear period and then annualize it ... blur-text-image

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