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1. A two year 4% coupon bond maturing in 2 years is priced at $950. A zero coupon bond maturing one year is also priced

1. A two year 4% coupon bond maturing in 2 years is priced at $950. A zero coupon bond maturing one year is also priced at $950. Assume the par value is $1,000 for both bonds. What is the price of a two year zero coupon bond? [Hint: First compute the PV of the first cash flow from the two year coupon bond.]

A. Less than $900

B. Between $900 and $910

C. Between $910 and $920

D. Greater than $920

2. A two year 4% coupon bond maturing in 2 years is priced at $950. A zero coupon bond maturing one year is also priced at $950. Assume the par value is $1,000 for both bonds. What is the YTM of a two year zero coupon bond? [Hint: First compute the PV of the first cash flow from the two year coupon bond and then compute the YTM.]

A. Less than 4%

B. Between 4% and 4.5%

C. Between 4.5% and 5%

D. Greater than 5%

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