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The Whitmoer Co. is currently issuing both 20-year and 30-year bonds at par. The bonds pay 7 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds and hold them for ten years. Assume that the yield to maturity on each of these bonds is 9.6 percent ten years from now.
Required:
a. Determine the expected price of each bond five years from now.
b. Given your results in a, determine the percent price appreciation on the 20-year bond and percent price appreciation on the 30-year bond. Which bond has a higher interest rate risk?
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