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3. The price of a bond is equal to the present value of future cash flows to the bond holder. Assume that a bond with a face value of $1,000 pays an annual coupon rate of 2%. Further assume that the bond's maturity is 10 years and that the first coupon payment will be received in one year's time. a) Write out the formula for the present value of cash flows accruing to the bond holder over the next ten years. Hint: The bondholder will obtain the face value of the bond at redemption in year 10 in addition to the coupon payment. b) What is the price of the bond if the yield (the discount rate) is 1.5%? c) How does your answer change if the yield is 2.5%? 3. The price of a bond is equal to the present value of future cash flows to the bond holder. Assume that a bond with a face value of $1,000 pays an annual coupon rate of 2%. Further assume that the bond's maturity is 10 years and that the first coupon payment will be received in one year's time. a) Write out the formula for the present value of cash flows accruing to the bond holder over the next ten years. Hint: The bondholder will obtain the face value of the bond at redemption in year 10 in addition to the coupon payment. b) What is the price of the bond if the yield (the discount rate) is 1.5%? c) How does your answer change if the yield is 2.5%