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CFA Level 1
Fixed Income

Investor Return Expectation in Bond Price Analysis

Very Hard Fixed Income Valuation Term Structure Of Interest Rates

In a market characterized by a normal upward-sloping yield curve, a fixed income investor contemplates purchasing a 10-year bond that offers a coupon rate of 5% paid semi-annually. However, the investor's primary consideration is the current market interest rate for similar bonds, which stands at 7%. Upon analyzing the bond's price using the present value of its cash flows, the investor is concerned about potential capital gains or losses if they decide to sell the bond after three years. With this scenario in mind, what can be inferred about the investor's expected holding period return if market conditions remain unchanged?

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