If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5%? Why?
PV = $1,050/(1. +.05) + $1,102.50/(1 + 0.5)2 PV = $2,000
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