a). Determine the price of a 5 year 10% coupon treasury bond, sold to yield 8%.

b). You buy the bond above from the price you calculated expecting to earn the promised YTM. What ending wealth (value) should you have after two years?

c). After you bought the bond at the price computed in part a, interest rates increased to 12%. Assume a flat yield curve at 12%. What ending wealth would you actually have? Is it what you calculated in part b? If not, explain why and compute the annualized return over the two year holding period.