a. An 8%, five-year bond yields 6%. If the yield remains unchanged, what will be its price one year hence? Assume annual coupon payments.

b. What is the total return to an investor who held the bond over this year?

c. What can you deduce about the relationship between the bond return over a particular period and the yields to maturity at the start and end of that period?

Visit us at www.mhhe.com/bma Visit us at www.mhhe.com/bma Visit us at www.mhhe.com/bma Visit us at www.mhhe.com/bma Chapter 3 Valuing Bonds 71 AppendixLO1