Consider a bond with a 10% coupon and yield to maturity = 8%. If the bonds yield to maturity remains constant, then in one year, will the bond price be higher, lower, or unchanged? Why? Consider an 8% coupon bond selling for $953.10 with three years until maturity making annual coupon payments. The interest rates in the next three years will be, with certainty, r1 = 8%, r2 = 10%, and r3 = 12%. Calculate the bonds (a) yield to maturity and (b) realized compound yield.
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