1. You open the Wall Street Journal and notice a bond with a ten year maturity, 9% coupon rate, annual coupons, and $1000 face value trading for $1,308.87.
(a) What is the yield to maturity of the bond?
(b) If the yield to maturity changed to 7.25%, what would be the price of the bond?
2. You have decided that you want to purchase a house 10 years from now. You expect that you will need $35,000 for a down payment in 10 years. Luckily, you have recently received $45,000 in cash from relatives. If the current annual rates on 10-year, zero-coupon bonds are 1.90%,
(a) how much money do you need to invest in zero coupon bonds today in order to have your $35,000 down payment when you want to purchase the house?
(b) how much money can you spend today?