Calculate the initial price of the bond

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Suppose you purchased a 25-year, $2.5 million deep discount bond when it was intially offered. Four years later you sell the bond and market interest rates have risen from 6.25% to 8.54%.

a. Calculate the initial price of the bond.

b. Calculate the current price of the bond.

c. Calculate the annual holding period return on this investment and compare it to the annual return you were expecting.

d. Explain whether your return would have been relatively greater or less if you had purchased a 10-year investment. Support your conclusion with numerical evidence

Reference no: EM13887796

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