1a)

Suppose you purchase a 20-year treasury bond with a 6% annual coupon ten years ago at par. Today the bond's yield to maturity has risen to 8%. If you hold this bond to maturity, the internal rate of return you will earn on your investment will be closest to:

A) 5.0% B) 5.6% C) 6.0% D) 8.0%

1b)

Suppose the term structure of risk-free interest rates is given as:

Term 1 year 2 years 3 years 5 years 10 years.

Rates are respectively --> 2.25% 2.80% 3.20% 4.10% 6.30%

The present value of an investment that pays $2000 in one year and $3000 in three years for certain is closest to:

A) $4707 B) $4685 C) $4729 D) $5000