A bond matures in N years from today and pays k coupons per year at equal intervals.

Let y denote the yield of the bond.

a) Find a formula showing the relationship between the price of the bond and the yield. Explain your reasoning clearly.(4 marks)

b) Using your formula in part a), prove that if the yield of a bond is equal to its coupon rate, then the price will be equal to the face value.(5 marks)