Question: Question #2: Bonds [16 Points] (a) Suppose you're looking to purchase a 16 year, $1000 face-value coupon bond that has a coupon rate of 4.1%.

$Question \#2: Bonds [16 Points] (a) Suppose you're looking to purchase$

Question \#2: Bonds [16 Points] (a) Suppose you're looking to purchase a 16 year, $1000 face-value coupon bond that has a coupon rate of 4.1%. Assume that the current yield to maturity (YTM=i) is 4.8% and that the coupon payments are paid semi-annually. What is the price you would pay for this bond today? [6 Points] (b) Suppose next year the YTM decreases to 4.0%. What would be the price of the bond that you purchased in Part (a) next year? [Hint: When calculating the price of the bond next year consider how many periods are left until the bond matures.] [6 Points] (c) Suppose you decide to sell the bond next year at the price you found in Part (b). What would be your 1 year holding period return on the bond? [4 Points]

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