1. Bond Pricing (32 points, 8 points each)

1. What is the current price of a 10% coupon bond (with standard semiannual payments) if the yield-to-maturity on the bond is 5% (APR with semiannual compounding), the bond matures two years from today, and the bond has a face value of $1,000?

2. Describe two reasons the yield-to-maturity of the bond might increase. What will happen to the price of the bond when the YTM increases?

3. For a given change in yield-to-maturity (e.g., 100 bps), will a short-term or long-term bond have a bigger percentage change in price?

4. What is the relationship between coupon rates and yield-to-maturity for bonds selling
   • at a premium?
   • at a discount?
   • at par value?