1. A bond will mature in 30 years. It has a 7% coupon rate and will pay annual coupons. If the bond has a face value of $1,000 and a 6% yield to maturity, what should be the price of the bond today? What if YTM goes up to 7%? What if YTM goes up to 8%?

2. What would be the price of the bond above in (1) if the coupons were paid semiannually?

3. What is the relationship between the coupon rate of a bond and the yield to maturity in terms of the bonds price. In particular, when do we have a discount bond, a par bond, and a premium bond? Please explain the rational behind the relationship as if you are explaining this relationship to a novice of Finance.

4. Both Bond A and Bond B have 6% coupons, make semiannual payments, and are priced at par value. Bond A has three years to maturity, whereas Bond B has 20 years to maturity. If the interest rates suddenly rise by 2 percent point to 8%, what is the percentage change in the price of Bond A and Bond B? If rates were to suddenly fall by 2 percent points to 4% instead, what would be the percentage change in the price of Bond A and Bond B then?

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