1. (15 points) Suppose that you have just purchased a ten-year zero-coupon bond with par value of $1,000. The market interest rate for this bond is 2%. During the day, the interest rate drops to 1%. (a) (5 points) What is your capital gain if you sell the bond at the end of the day? (b) (10 points) How will you answer change if you instead consider a one-year zero-coupon bond? Suppose that yield curve is flat. Comment on the differences 2. (10 points) After negative news about corporation's A earnings, its credit rating was reduced from Ana to Ban. As a result, the price of its ten-year bond with face value of $1,000, coupon rate of 10% and semiannual payments, dropped from $1,000 to $900. Compute this bond's yield before and after the downgrade