Using the Treasury market framework, show graphically and explain what happens to market interest rates if investors
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Question:
- Using the Treasury market framework, show graphically andexplainwhat happens to market interest rates if investors become less risk averse. (10 points).
- There is an 12-year bond with a par of $1,000 and a coupon of 5.20%. Suppose the bond is bought today at a price of $1,032.60, and the market interest rate is 4.82%. It turns out that in 4 years an investor sells the bond at a price of $1,059.12. Calculate the annual realized return over the 4 years the investor held the bond. Show your work and explain. (8 points).
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