Attached is the document showing the results for question number two. Thank you for your help yesterday and today! Questions 3-5 need to be answered. Please let me know if you need anything else.

3. Using 2?s results, calculate the percentage change for each bond?s price for both the half-percentage point change and the one-percentage point change.

4. Using your answers from 3, calculate the return you would have earned for each of the above 3 bonds if you had held them for one year.

5. Consider the information for the following bond:

Bond	Coupon Rate	Maturity Month/Year	Asked	Ask Yield	Years to maturity
4	1.000	Feb 15 2046	101.687	0.933	29

a. Why is the asked yield for this bond (0.933 percent) much smaller than the asked yield on bond 3 which also matures on February 15, 2046 (3.110 percent ? see problem 1)?

b. What is the asked yield on this bond a direct measure of?

c. For the sake of argument, assume that the bond mentioned in part a of this question (bond 4) has the same term to maturity as bond 3 from question 1 (29 years). What does the bond market believe the annual rate of inflation to be, on average, over the next 29 years?

d. If you believe that the rate of inflation over the next 29 years will be 3 percent per year, would you choose bond 3 or bond 4? Why?

Note: Answer Sheet for Homework 1 Money and Banking 1. Bond 1 Current Yield 3.41% 2 4.14% 3 2.83% The difference between the current yield and yield to maturity is below; Bond one: 2.51% Bond two: 1.53% Bond three: .28% When the par value of the bond and the ask price of the bond are the same, in that case the current yield is a good approximation of the yield to maturity. 2 Bond New price of bond in 2012 if interest rates increase by 50 basis points during the year. New price of bond in 2012 if interest rates increase by 100 basis points during the year. 1 100.0000 100.0000 2 119.7114 114.7034 3 80.6433 73.5095 3. Bond %P if interest rates increase by 50 basis points during the year. %P if interest rates increase by 100 basis points during the year. Return if interest rate increase by 50 basis points during the year. Return if interest rate increase by 100 basis points during the year. 1 2 3 4 Bond 1 2 3 5