Question: You buy a 5-year zero coupon bond (face value = $1000) for $658. Assume interest is compounded annually. a) Find the yield to maturity. Answer

You buy a 5-year zero coupon bond (face value = $1000) for $658. Assume interest is compounded annually.

a) Find the yield to maturity. Answer should be xx.xx%

b) Investors feel the bond is a good deal, so they buy it. This increases the bond's price. At the end of the year, the bond's price is $780. What is the yield to maturity for a new investor buying the bond at $780? Answer should be xx.xx%

c) If you sell your bond at the end of the year for $780, what is your return over the year? Why does this differ from your original yield to maturity? Answer should be xx.xx%

Please show your work.

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