Interest of coupons over two-year investment horizon

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Suppose you bought an A-rated, 20-year maturity, 8% coupon bond with face value of $1,000 and semi-annual coupon payments. Suppose that immediately after you bought the bond the yield on such bonds decreased from 10% to 9% and remains at 9% until you sell the bond at the end of two years. (1) What price did you pay for 20-year, 8% coupon bond? (2) Estimate the coupons you received on the bond and interest-on-interest of the coupons over the two-year investment horizon. (3) What is the price of the original 20-year bond at the end of your investment horizon? (4) What is your total return for two years?

Reference no: EM131014332

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