Question: Consider two coupon bonds: A and B , both trade in units with a face value of 100 000, 2 remaining years to maturity and

Consider two coupon bonds: A and B, both trade in units with a face value of 100 000, 2 remaining years to maturity and annual coupons received at the end of each of the years. The coupon rate of bond A is 3% while that of bond B is 4%. Their current pricing reflects an interest rate level (annualized yield to maturity) of i=2%.

- Consider a bond portfolio T consisting of one unit of the A bond and two units of the B bond. What is the present value of T in one year from now (just after receiving the coupons), assuming unchanged yields? Find also the holding period return of the first year in this case.

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