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A $1,000 maturity value bond currently has 9 years left to maturity. The bond has a 6% coupon rate and pays interest annually. (5) a.

A $1,000 maturity value bond currently has 9 years left to maturity. The bond has a 6% coupon rate and pays interest annually.

(5) a. If you want to earn a 7% rate of return, how much would you be will to pay today for this bond?

b. Suppose you buy the bond for the value you calculated in part a. After

holding the bond for 5 years and receiving 5 interest payments, you sell the bond for $1,100. What annual, compound rate of return have you earned over this 5 year period? Prove your answer by showing that PV get equals PV give up.

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