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Consider a 12 percent (annual) coupon bond that matures in 3 years, has a par value of 1000, and pays coupon semiannually. Suppose that currently

Consider a 12 percent (annual) coupon bond that matures in 3 years, has a par value of 1000, and pays coupon semiannually. Suppose that currently this bond is available in the market for 1000. Suppose that your investment horizon is 1 year and you expect that the market yield to maturity of this type of bond will decrease to 7.5% in 1 year from now.

 a) Find, what will be the value of this bond in 1 year from now considering the expectations outlined.

 b) Calculate the horizon yield from this bond considering the investment horizon and the expectations outlined. 

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