One year ago, you purchased a 7 percent coupon bond with a face value of $1,000 when it was selling for 102.5 percent of par. Today, you sold this bond for 104 percent of par. What is your total dollar return on this investment?

1. Pricing a bond in the secondary market: For each question, use the three methods we learned in class: plug in the values in the formula, handwrite the keys you enter in the Financial Calculator, and use Excel (formula and arguments). Use the Table below for each answer. a. Find the price of a 10-year 10% coupon (paid semiannually). The current yield to maturity is 5%. b. Find the price of a 10-year 5 % coupon (paid semiannually). The current yield to maturity is 10%. c. Based on your answers, discuss the relationship between coupon rate, yield to maturity, and bond price. FORMULA (Plug in the corresponding values in the formula below) 2 Financial Calculator (Indicate the keys you enter and write the answer) 3 Excel (Write the function and arguments in Excel)

Your client is considering the purchase of a bond that is currently selling for $1058.15. The client wants to know what annual rate of return can they expect to earn on the bond. The bond has 27 years to maturity, pays a coupon rate of 7.8% (payments made semi-annually), and a face value of $1000, (Round to 100th of a percent and enter your answer as a percentage, e.g. 12.34 for 12.34%) Answer: Check

Suppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?