2. The coupon bond is a bond that pays a fixed interest payment until the maturity date. At the maturity date, the face value is returned. Fquation I shows the present value of a coupon bond. P=1+iC+(1+i)2C+(1+i)3C++(1+i)nC+(1+i)nF Let's assume that the coupon rate is 5 percent, the coupon is paid annually, and the maturity is 5 y.ars. The face value is 100 , and your investment strategy is to hold until the maturity. In addition, the market rate (discounting factor) is 2.5 percent. Taking this all together, we get that the present value of the bond at the issue date is 111.6 euros. (a) The markets anticipate an increase in the default risk of the government of Finland. Since the expected default risk of Finland's T-bond increased, the market value of recently issued 5-year bonds decreased from 100 to 98 . What is the change in the bond's yield to maturity? You may use financial calculators or Excel but explain your logic in a clear manner. You can also draw equations if you wish. (b) The government of Finland is broke, and it unilaterally declares a debt moratorium at period (i.e., year) 4. Therefore, it cancels the coupon payment at period 4 and postpones paying the last coupon and returning the face value by one year. If this had been known when the debt was issued, how much would it have affected the present value of the bond? Feel free to use online calculators, Excel, ete., but explt in your logic in a clear manner