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Imagine a discount bond that promises to pay you $1000 a year from now. Suppose the market interest rate is 5%

Suppose that the going price for this bond is $800.

i. What is the interest rate on this bond (if it does not default)?

ii. What is the expected return on this bond?

iii. What is the risk premium on this bond, if the interest rate on a one-year Treasury bond is 5%?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92859728

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