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Consider^bond that promises to pay coupons annually for 10 years. The face value is $1000. The risk-free rate is 2% (annually). a) Suppose the bond

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Consider^bond that promises to pay coupons annually for 10 years. The face value is $1000. The risk-free rate is 2% (annually). a) Suppose the bond is risk-free and suppose the bond is originally introduced at a price equal to its face value, $1000. What should be the annual coupon rate (=coupon as a % of face value) so that the price is equal to the value of the bond? b) Two years have passed, the second coupon has just been detached from the bond, and the beginning of year 2 is now considered to be year 0. (i) If the risk-free rate is still 2%, what is the current market price of the bond? (ii) If the risk-free rate increased to 2.3%, what is the current market price of the bond

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