Question $1$

Consider a bond with $2$ years to maturity, Face $($Par$)$ Value $=$$$1,000,10\%$ annual coupon rate,

semi$-$annual coupon payments and YTM $=3\%$ per $6$ months. The bond price now is $$1,074\mathrm{.}32.$

a$)$ Suppose that $6$ months later, right after the coupon payment, the YTM of the bond still is $3\%$

per $6$ months. What is the market price of the bond? What is the HPR of buying the bond today

and selling it then?

b$)$ Suppose that $6$ months later, right after the coupon payment, the YTM has gone down to

$2\mathrm{.}7\%$ per $6$ months. What is the market price of the bond? What is the HPR of buying the

bond today and selling it then? Express this HPR as an APR rate with semi$-$annual

compounding and as an EAR.