An investor is interested in buying a corporate bond with a face value of $1,000, a single A rating, and a 5-year maturity. The bond has an annual coupon rate of 2.25%, payable semiannually.

A. What is the current price of the bond?

B. In one year, if interest rates on similar bonds drop by 50 basis points, what will be the price of the bond?

Need to use the following market information to answer the questions.

Treasury Yield Curve (annual percentages)

Yield to Maturity

For 2 years is 0.153% 5 years is 0.844% 10 years is 1.662% 20 years is 2.325% 30 years is 2.426%

Implied spreads above treasuries (in annual percentages)

US Treasure Corporate Bonds 2 years 5 years 10 years 20 years 30 years

0 0 0 0 0

AAA 0.094% 0.161% 0.235% 0.402% 0.860%

AA 0.147% 0.275% 0.588% 0.758% 1.430%

A 0.249% 0.598% 1.094% 1.377% 1.724%

BBB 0.476% 1.506% 1.658% 1.885% 2.424%