All answers must have supporting reasoning.

a. Why would an investor buy a bond rather than invest the money in the bank?

b. A discount bond that has annual coupons is purchased. It is sold exactly three years later at the same YTM as when it was purchased. The selling price at the time of sale is lower than the purchase price. Explain how this could happen.

c. What could account for the YTM of a bond decreasing?

d. X owns a $1000 face value bond that has semi-annual coupons and matures in exactly 20 years. The bond is priced at a YTM of 7.2% and trades for $1,125. X sells the rights to the coupons while still keeping the face value. This is known as a bond that has been stripped of its coupons. What is the value of Xs asset (i.e. the value of the face value that X keeps)?