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2. Paying back the principal. Suppose Mark has just borrowed 5,000S to purchase a desktop computer. The loan rate is 9% per year. He must pay 450$ in interest payments at the end of the first year and at the end of the second year. He can freely choose how to repay the principal on the loan that is the 5,000S he initially borrowed. Assume that he decides to repay 2,500S at the end of the first year and 2,500S at the end of the second year. Compute the yield to maturity on this loan. Assume instead that he repays the entire principal, 5,000S, at the end of the second year Compute the corresponding yield to maturity How does the yield to maturity depend on the sequencing of principal repayment? How does this calculation change if in each year he must pay interest only on the outstanding principal!

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