A 3.375%, 10-year bond with semi-annual coupon payments and a face value of $10,000 has just been sold at par.

a)What are the cash flows to the bond?

b)What is the (annual) required return on the bond? Hint:

1.Hint:APR vs EAR

c)If a 10-year zero-coupon bond were marketed at the same required return as in part b), what would be the price of a $10,000 face value bond?

d)Immediately after issuance, if the required return increases by 0.50% per year, compounded semi-annually, what will be the new price of the coupon bond?(Note:this is a one-time increase of 0.50%, not a continuing series of increases.)

e)What would happen to the price of the 10-year zero-coupon bond with a face value of $10,000 given this change in interest rate?

f)What is the percentage change in the coupon bond, given the change in interest rates?

g)What is the percentage change in the zero-coupon bond, given the change in interest rates?

h)What causes the difference in the answers to part f) and part g)?