Answer the question

Question 1

a) You purchase a 10-year US Government bond (T-bond) with a par value of 4,000. The bond has an annual coupon rate of 4.86%, paid semi-annually. If investors demand a 0.986% semiannual return, what is the price of the bond?

b) A 7-year bond is issued with a face value of $10,000, paying interest of $950 a year. If yields to maturity decrease shortly after the T-bond is issued, what happens to the bond's

a. Coupon rate?

b. Price?