Discussion Questions for Tuesday, Feb. 19 1. which bond offers the highest yield, 10 year $1000 face-value 2% coupon bond or 10 year S1000 facevalue 12% coupon bond? 2. Which of the following bonds has the lowest yield? a) b) c) $100 face value 4% coupon bond selling for S105 S 1000 face value 6% coupon bond selling for $978 A consol bond with $4 coupon selling for $78 3. Suppose in 2018 you buy 3% coupon rate, $100 face value bond for $100 that has 3 years left till maturity. Suppose in 2019, when interest rates increase to 6%, you decide to sell it. a) Calculate the selling price of your bond in 2019. How did its value change because of the interest rate increase? b) What was your one-year rate of return? 4. Assume you just deposited $1,000 into a bank account. The current real interest rate is 2%, and inflation is expected to be 6% over the next year a) year? If you could negotiate, what nominal rate would you require from the bank over the next b) Suppose you and the bank agreed on that nominal interest rate and inflation turned out to be 8%. Use nominal/real interest rate concept to conclude who gained, you or the bank, from this inflation change S. Two articles from WSJ are written 4 years apart. The first article written in 2014 talks about how exceptionally well the bond funds performed, some of them posting 45% return in just one year. The second article written in 2018, talks the weak demand for government bonds and their falling prices . What do you think were the main reasons for such diverging performance of government bonds in 2014 and 2018? . How do bond prices react to changes in diferent types of interest rates, not just bond interest rates? Considering all the available information about the future state of economy, inflation or expected behavior of central banks, would you advise investing in long-term bonds? Explain why or why not