QUESTION 3 Duration, yield to maturity, and the expectation hypothesis A. What is the yield to maturity on a 7-year bond with a face value of $100 and a 7% annual coupon selling at $107:00: (a) 7.00%; (b) 4.48%; (c) 1.97%; (d) 5.80%; B. If a 2-year bond is yielding 2:25% and selling at par, what is the 1-year rate next year if the bond price falls to $99:00: (a) 4.30%; (b) 2.25%; (c) 3.28%; (d) 3.85%;

Consider a 3-year bond with a face value of $100, a 4% yield to maturity, and a 7% annual coupon. C. What is the duration: (a) 2.82; (b) 3.91; (c) 2.42; (d) 3.00; D. By how much would the bond price rise if the yield to maturity fell to 3%: (a) 7.48%; (b) 4.55%; (c) 3.68%; (d) 2.71%;

E. A 2-year bond with a yield to maturity of 1:5% has a duration of 1:87. What is the annual coupon: (a) 40%; (b) 2.50%; (c) 25%; (d) 17%; F. A bond has a price of $102:50, a coupon of 2%, and a yield to maturity of 1:698%. How many years till the bond matures: (a) 2; (b) 4; (c) 6; (d) 9;