One of your clients has decided that she needs to sell one of her bonds in order to help her pay for tuition for her daughters college courses. Your client owns a $20,000 bond that she bought for $20,000 and it pays her 5% interest each year, which is fixed for the remaining 8 years until the bond matures. Because interest rates in the market have risen since your client bought the bond, the best price that anyone has offered to buy it from her is $ 18,400 If she agrees to sell the bond for $ 18,400 and the new owner holds the bond until maturity, what will the approximate yield to maturity be on the bond for the new owner?

2)

Another of your clients has a question for you about interest rates.

She was reading an article in the Metro newspaper on the LRT while on the way to work this morning and it talked about mortgage interest rates likely dropping soon because interest rates that banks pay on their customers deposits are continuing to drop, and that could be the beginning of a trend that may last for the rest of 2021, and maybe even into 2022. The question from your client is this:

"If short-term interest rates are likely to continue to drop further, maybe into 2022, what type of yield curve am I looking at"?

Please explain to the client what type of yield curve she may be facing, and why.