Consider a coupon bond that you can buy today. The bond will make coupon payments once a year, in February 2020, February 2021, February 2022, and also pays off its face value (or principle) in February 2022. The face value is $500. The coupon rate is 5% ("%" means percent). You look on your Bloomberg terminal and see that current market yields to maturity for "zero coupon" (single-payment) bonds are as follows:

12% for bonds paying off in February 2020 (one year zero-coupon bonds) 7% for bonds paying off in February 2021 (two-year zero-coupon bonds) 8% for bonds paying off February 2022 (three-year zero-coupon bonds)

a) 5 pts. Write a formula that shows the highest price anyone should be willing to pay for this bond. Use the above information as appropriate, that is plug in numbers wherever you can, but do not try to solve the formula to get a number for the price.

b) 5 pts. Now suppose that today's market value of the bond is $350. Write a formula that defines the coupon bond's yield to maturity. Again, use all the information I gave you, plug in numbers where you can, but do not try to solve the formula. Point out which symbol in the formula stands for the yield to maturity.

c) 5 pts. Suppose that today's market value for the bond, $350, is less than the value that comes out of the formula you wrote down for part a) of this question. What could you do to make a lot of money very fast?