Q7 (Essential to cover) Suppose the pure yield curve is currently given by Spot Rate yi y2 1% 2% 2.5% Y3 A 3-year 6% annual coupon bond with a face value of $100 is currently trading in the market and is priced using the pure yield curve. a. Without calculating the yield to maturity on the bond, will it be equal to, higher or lower than the 3-year spot rate y3? Explain why? b. Without calculating the price of the bond, will it be a par, premium or discount bond? Explain why? c. If after the bond is purchased, the yield curve shifts down uniformly by 0.5%. Will the price of the bond stay the same, increase or decrease? If the bond is held to maturity, will the realized compound yield be equal to, higher or lower than the yield to maturity on which the bond was purchased? Will it be equal to, higher or lower than the 3-year spot rate y3 when the bond was purchased? Explain why