Course: Business Finance

A three-year Treasury bond (Bond A) is traded at 10% yield to maturity. The bond has a face value of $1000 and pays annual coupons at 8% coupon rate.

a) Calculate the price of the bond.

b) Suppose one year later, the bond price becomes $1000. What is the yield to maturity of the bond at that time? What is the one-year holding period return on the bond?

c) In addition to the previous three-year bond (Bond A), you also observe a one-year zero-coupon bond traded at $952.38 and a two-year zero-coupon bond traded at $890.00. Both bonds have $1000 face values. Calculate the price of another three-year bond (Bond B) with annual coupon payments of $70 and $1000 face value.