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OpenStudy (anonymous):
Consider the following floating rate bond: it has a face value of $100. Each half year it pays coupon based on the current market returns over the half year that has just ended. That is, if the market returns 3% from 15 January to 15 July then the bond pays $3. The bond matures in 10 years’ time, at which point the $100 face value is returned to the purchaser. How much would you pay for this floating rate bond? Why?
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