Question: 1 basis point = 0.01% i. Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bonds YTM remains

1 basis point = 0.01%

i. Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bonds YTM remains constant, then in one year will the bond price be higher, lower, or unchanged? Why?

ii. The yield curve is upward-sloping. Can you conclude that investors expect shortterm interest rates to rise? Why or why not?

iii. Under the expectations hypothesis, if the yield curve is upward-sloping, the market must expect an increase in short-term interest rates. True/false/uncertain? Why?

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