1. Suppose you buy a seven-year zero-coupon Treasury bond, with a face value of $1000, at a price or $600. Answer the following questions: (a) What is the yield to maturity (YTM) on the bond? (assume annual compounding) (b) Suppose that, in year t = 1, the YTM of the bond increases to 10% and remains equal to 10% until year t = 7. i. Calculate your annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 1. ii. Calculate the annualized holding period return if you buy the bond in year t=1 and sell it in year t = 7. iii. Calculate your annualized holding period return if you buy the bond in year t= 0 and sell it in year t = 2. (c) Suppose that, in year t = 3 years, the YTM of the bond declines to 2%, and remains equal to 2% until year t = 7. i. Calculate the annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 3. ii. Calculate your annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 7. (d) What explains the relationship between annual holding period returns calculated in questions (b) and (c), and the yield to maturity in (a)? 1. Suppose you buy a seven-year zero-coupon Treasury bond, with a face value of $1000, at a price or $600. Answer the following questions: (a) What is the yield to maturity (YTM) on the bond? (assume annual compounding) (b) Suppose that, in year t = 1, the YTM of the bond increases to 10% and remains equal to 10% until year t = 7. i. Calculate your annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 1. ii. Calculate the annualized holding period return if you buy the bond in year t=1 and sell it in year t = 7. iii. Calculate your annualized holding period return if you buy the bond in year t= 0 and sell it in year t = 2. (c) Suppose that, in year t = 3 years, the YTM of the bond declines to 2%, and remains equal to 2% until year t = 7. i. Calculate the annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 3. ii. Calculate your annualized holding period return if you buy the bond in year t = 0 and sell it in year t = 7. (d) What explains the relationship between annual holding period returns calculated in questions (b) and (c), and the yield to maturity in (a)