1 The YTM on a bond is the interest rate you earn on your investment if interest rates dont change. If you actually sell the bond before it matures, your realized return is known as the holding period yield(HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.3 percent for $890. The bond has 7 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of return % Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. b. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $ What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Holding period yield %

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2- Volbeat Corporation has bonds on the market with 19 years to maturity, a YTM of 11.1 percent, a par value of $1,000, and a current price of $937. The bonds make semiannual payments. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %

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3- An investment offers a total return of 11 percent over the coming year. Janet Jello thinks the total real return on this investment will be only 8.9 percent. What does Janet believe the inflation rate will be over the next year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Inflation rate %

4- You find a zero coupon bond with a par value of $10,000 and 29 years to maturity. The yield to maturity on this bond is 5.1 percent. Assume semiannual compounding periods. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $