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1. A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the bond is 10%, calculate the

1. A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the bond is 10%, calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments.

2. Now, suppose that the YTM is lowered by 2%p two year after the issue of the above bond and is maintained at the level until the maturity of the bond. Graph the approximate trace of the bond prices over the 3 years.

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