1. A coupon bond pays $100 per year with 1000 price. What is the return of the bond for one year if the YTM was initially 10% and increased at the end of year to 5%?

2. A consol (perpetuity) that pays $100 per year with 1000 price. What is the return of the bond for one year if the YTM was initially 10% and increased at the end of year to 5%?

3. Compare the return of the consol to the return of coupon bond and explain why there is a difference between the two returns.

Answer rating: 100% (QA)

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