1. An investor purchases two bonds, one matures in 5 years and the second is a perpetuity. Both bonds have a coupon rate of interest of 7% which is also the initial yield to maturity. One year after the purchase dates both bonds have a yield to maturity of 10% and the investor sells both bonds. What are each of the bonds prices when they are sold?

a. You buy a 6-year zero coupon bond for $632 today. Two years from now, when the yield to maturity (i.e., market interest rate) is 12%, you sell the bond. What is your capital gain or loss?

b. Suppose you buy bonds today with a current market value of $962.00 per bond having 8% yield to maturity. The bonds mature in 7 years and interest is paid semi-annually. What is the coupon rate?

c. Continuing from problem 3 above, one year from now, when the yield to maturity is 10%, if you sell the bond, what is your holding period return?

d. Suppose, in the above problem, if the yield to maturity changed to 10% immediately after purchasing the bond, how would it affect your holding period return?