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You own a bond that pays $ 80 in annual interest, with a $1000 par value....

  1. You own a bond that pays $ 80 in annual interest, with a $1000 par value. It matures in 20 years. The market required yield to maturity on a comparable-risk bond is 10%
  1. Calculate value of the bond
  2. How does the value change if the yield to maturity on comparable-risk bond
  1. Increase 17% or
  2. Decrease to 6%
  1. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds
  2. Assume that the bond matures in 5 years instead of 20 years , and recalculate your answers in part b
  3. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds and discount bonds

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