Bond A is a $1,000, 6% quarterly coupon bond with 5 years to maturity.

Oneyearlater,BondA'sYTMhasgonedownto6%compoundedquarterlyandyousellit immediately after receiving the coupon.

In computing the 1-year holding period yield (HPY) for this bond investment, you figured that the correct answer could not be found by simply adding up the current yield and the 1-year capital gains yield because the current yield, by definition, would fail to consider the reinvestment of the quarterly coupons received during the year (4 quarters in total).

(1) If the interest rate remains unchanged at 8% compounded quarterly during the 1- year period, calculate the total amount of coupon income (coupon payments and reinvestment of coupon payments) at the end of the 1-year holding period,. [Hint: Use the FVA formula.] Show your steps and equations. (2 marks)

(2) Based on the results from part (biii (1)) and part (bii), calculate the 1-year holding period yield (HPY1-year). Show your steps and equations.(2 marks)

answer of (bii) : current yield=6.53% ; capital gains yield =14.4%