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A 4-year government bond makes annual coupon payments of 4.5% and offers a yield of 2.5% annually compounded. Assume face value is $1,000. Note: Do

A 4-year government bond makes annual coupon payments of 4.5% and offers a yield of 2.5% annually compounded. Assume face value is $1,000.

Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

  1. Suppose that one year later the bond still yields 2.5%. What return has the bondholder earned over the 12-month period?
  2. Now suppose that the bond yields 1.5% at the end of the year. What return did the bondholder earn in this case?

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