Question 1) Consider a 4-years to maturity Coupon bond with Face Value = $1000 and a 5% coupon rate; suppose it was just now issued (i.e. it was issued at time t).

a. Obtain the PV (i.e. set up the equation and plug in all values).

b. What is the yield to maturity (it) on the bond? Just give #.

c. Suppose that the yield one year later (in t+1) is expected to fall to 3%; i.e. it+1e =3% . Calculate the expected future price of this bond; i.e. calculate Pt1+1e on the bond. Show all work.

d. Given your answers above, calculate the expected rate of capital gains, the current yield, and the expected rate of return on this bond? Show all work.