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3. A seven-year government bond makes annual coupon payments of 5% and offers an interest rate (ie. YTM) of 3% annually compounded. Face value is

3. A seven-year government bond makes annual coupon payments of 5% and offers an interest rate (ie. YTM) of 3% annually compounded. Face value is $1000. Suppose that one year later the bond still yields 3%.

a. What is the bond price in year 0?

b. What is the bond price in year 1?

c. What return has the bondholder earned over the first year?

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