8. Below is a list of prices for zero-coupon bonds of various maturities.

Maturity Price of $1,000 Par Bond

(Zero-Coupon)

1 year 943.40 2 873.52 3 816.37

a. An 8.5% coupon $1,000 par bond pays an annual coupon and will mature in 3 years. What should the yield to maturity on the bond be?

b. If at the end of the fi rst year the yield curve fl attens out at 8%, what will be the 1-year holding-period return on the coupon bond?