Use the information below to answer question a to i

Par value 1000

Coupon rate 10% of par, paid annually

Maturity = 5 years

YTM = 8% at time 0

1. What is the price of this bond at time 0?
2. What is the bond price at time 1 if YTM remains constant at 8%
3. Compute capital gain yield (i.e., bonds percentage price change) and current yield (i.e., coupon/bond price). Show that capital gain yield + Current yield = YTM
4. Compute the price of the bond in year 2, 3, 4, and 5. And plot the prices in each year against time (see my handout chapter 6 part 2 page 2 (bonds) for example.
5. If at time 1, YTM increases to 12%, compute bond price at time 1
6. Based on e, compute one year holding period return based on the price at time 0, coupon received, and bond price at time 1 when YTM is 12%.
7. Based on f, If YTM remains 12% for the rest of the life of this bond, compute bond price at time 2, 3, 4, and 5
8. Based on g, compute one year holding period return between time 1 and time 2 (based on price at time 1, coupon at time 2, and price at time 2).
9. Explain why if you hold the bond from time 0 to maturity, IRR of your investment will be 8% regardless of how YTM moves between year 0 and year 5.