1. Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 5.5%. You hold the bond for five years before selling it.

a. If the bond's yield to maturity is 5.5% when you sell it, what is the annualized rate of return of your investment?

b. If the bond's yield to maturity is 6.5% when you sell it, what is the annualized rate of return of your investment?

c. If the bond's yield to maturity is 4.5% when you sell it, what is the annualized rate of return of your investment?

d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.

2.

Consider the following bonds: Bond Coupon Rate (annual payments) 0.0% 0.0% 4.1% 8.4% Maturity (years) 15 10 15 10 C D What is the percentage change in the price of each bond if its yield to maturity falls from 6.2% to 5.2%? The price of bond A at 6.2% YTM per $100 face value is $ (Round to the nearest cent.)