A 5-year government bond with a face value of 100 makes annual coupon payments of 6 per cent and offers a yield to maturity of 4 per cent compounded annually. Suppose that one year later bond yields for bonds of this risk class have fallen to 3 per cent. What is (i) the price of the bond in one year (to the nearest 0.01) and (ii) the rate of return (to the nearest 0.01%) which the bondholder has earned over the 12-month period from today to one year from now?

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a

(i) 108.90 and (ii) 4.00%

b

(i) 108.90 and (ii) 7.57%

c

(i) 111.15 and (ii) 4.00%

d

(i) 111.15 and (ii) 7.57%

e

None of the above