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. If at time 1, YTM increases to 12%, compute bond price at time 1
2. Based on a, 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%.
3. Based on b, If YTM remains 12% for the rest of the life of this bond, compute bond price at time 2, 3, 4, and 5
4. Based on c, 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).
5. 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.