(6) Suppose there are only two investment alternatives: a bank deposit that pays 8% per year, and a 3-yea face value of $1,000 and 5% annual coupon rate. Assume bank deposit and the coupon hand an the calculation, please make sure to show all formulas and round the values to 2 decimal places) a) Calculate P- the market price of the bond at the beginning of year 1. b) Calculate P2 - the market price of the bond at the beginning of year 2. c) What is the ex-ante (expected) annual rate of return for year 17 What is the ex-te al neof be you Assume now that at the beginning of year 2, the deposit interest rate unexpectedly rises to 20% a d) Calculate P2*- the new bond price for year 2. e) Calculate RET,- the ex-post (realized) rate of return on the bond in year 1. f) Calculate RET:- the ex-post rate of return on the bond in year 2. 23 Share Screens Reactions (6) Suppose there are only two investment alternatives: a bank deposit that pays 8% per year, and a 2-year coupon bond with face value of $1,000 and 5% annual coupon rate. Assume bank deposit and the coupon bond are perfect substitutes (For all the calculation, please make sure to show all formulas and round the values to 2 decimal places.) a) Calculate P- the market price of the bond at the beginning of year 1. b) Calculate P2 - the market price of the bond at the beginning of year 2. c) What is the ex-ante (expected) annual rate of return for year 1? What is the ex-ante annual rate of return for year 27 Assume now that at the beginning of year 2, the deposit interest rate unexpectedly rises to 20% annual d) Calculate P2*- the new bond price for year 2. e) Calculate RET, - the ex-post (realized) rate of return on the bond in year 1. f) Calculate RET2- the ex-post rate of return on the bond in year 2