1. Bond Valuation. [25 Marks] 1) Bond Prices and Yield Bond X is a premium bond making annual payments. The bond pays a coupon rate of 7.7%, has a YTM of 6.4% and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a coupon rate of 6.4%, has a YTM of 7.7%, and also has 13 years to maturity. The bonds have a $1,000 par value. a. What is the price of each bond today? Provide full details of your calculations. [4 Marks] b. If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? Provide full details of your calculations. [4 Marks] c. If interest rates remain unchanged, what do you expect the price of these bonds to be 5 years from now? 10 years from now? What's going on here? Provide full details of your calculations and illustrate your answers by graphing bond prices versus time to maturity. [7 Marks] 2) Interest rates a. Suppose interest rates increase from 6% to 8.5%. Which bond will suffer the greater percentage decline in price: a 30-year bond paying annual coupon of 6% or a 30-year zero coupon bond? Explain your answer. [5 Marks] b. What is the relationship between the current yield and YTM for premium bonds? [5 Marks]