2. a. For the Zero Coupon Bond 2 above, what will be your annual compound yield for your 5 year holding period if the bond is held until maturity. (Hint: PV is the price you paid for Bond 2 and FV is the bond's maturity value of $1,000 and n is the 5 year holding period; solving for i) (see formulas below). Hint Recall: Annual Compound Yield = {[FV/PV] ^ 1/n} - 1 or In other words {[What you have at the end of 5 Years / What You Paid] ^1/n} - 1 n = your 4-year holding period. Annual Compound Yield for Bond 2 at End of Year 5 b. Suppose for the Coupon Bond 1 above, rates go up to 6% after you purchase the bond for the life of the bond. Thus, you have to invest each of your $50 coupon payments at the 6% rate, and you sell your bond at the end of year 5 at its market price. What will be your annual compound yield? Hint: Recall FV of Bond Coupons Reinvested for 5years = Coupon Payment (FVIFA 6%, 5) And the Price You Sell the Bond for = Remaining Cash Flow / (1+r) since only 1 year is left on the bond. ACY = {[(FV of Coupons +Price you sell the bond for at end of year 5)] / (Price of Bond)] ^1/n} - 1, where n = 5 years Annual Compound Yield for Bond 1 at the End of Year 5 c. Explain why you received your desired annual compound return for the 5 year holding period for Bond 2 in a., but didn't receive your desired Annual Compound Return for Bond 1 for your 5 year holding period in b.?