a) Assume a relevant market rate of 8%. Price a pure discount (zero coupon) bond maturing in 10 years.

b) A bond is offering 10 semi-annual payments of $50 until maturity in 2027, when the principal, $1000 will be paid. What is the current value of the bond given that the yield of bonds with similar risk is 8% (annual effective yield- semi-annual yield is (1.08)1/2 -1 = 0.039) For which yield will the price be exactly $1000 (face or par value?).

c) You are holding a par bond with a 3-year maturity, which pays coupon rate of 8% and is selling at par. Assume that immediately after the purchase, market rates for this bond drop to 4%. What is the bond new price? What will be the realized compound yield if the bond is held to maturity? (Assume annual coupons)