. Consider a 10-year zero-coupon bond with a par value of $1000. Suppose that investors believe that there is a 30% probability that the issuer will default on its debt when the bond matures and if the issuer does default, investors will get 60% of the par value. Further assume investors demand an expected rate of return from investing this bond that is two percentage points higher than the 10-year T-bonds, which currently have a yield of 4.3%. What would be the bond's price and yield? If investors now expect the default probability to be 50% (while everything else stays the same), what would be the bond's new price and yield? Are they higher or lower compared to before and why? 4. Calculation of duration of an 10% coupon bond, with five years to maturity and $1000 face value, assuming the yield to maturity is 12%. Assume that the coupon bond pays the coupon once

a year. How much will the price change if yield increases to 13%? Using duration to get the approximate change. 5. Please briefly explain why would investor be willing to invest in 10-year T-bond with a yield of 4.2% when they can earn 5% from investing the 1-year T-bond?