On January 29th , 2015 you buy a bond that matures on January 29th, 2017. The face value of this bond is $1000, the coupon rate of 4% and the market rates 4%.

a. How much did you pay for this bond on January 29th, 2015? Explain your answer

You receive one coupon payment and sell the bond after 1 year following the decrease in the market interest rate from 4% to 2%.

What was the selling price of this bond?

What was the yield to maturity on this bond?

What was your holding period rate of return from this bond?

If inflation was 2%, what was your real rate of return for one-year holding period the bond?

If the bond you sold were longer maturity would your rate of return for one-year holding period return be higher or lower? Explain

Suppose that instead selling the bond after one year, you hold the band until its maturity

What would be your annual return from this bond