4. Consider the following bond purchased at $800 in 2018.

F=1000; C=100; N=5; P=800

a.

What is the yield to maturity? (This is equal to the market interest rate prevailing in

2018)

b. If the interest rate rises to 20% in 2019 what is the price of the bond?

(Solve the following equation: 0.2=(100+(1000-P)/5)/(1000+P)/2

c.

If the investor sold the bond in 2019 without holding till maturity did he/she make a

profit or a loss?

d. What is the rate of return in 2019?