QUESTION THREE- a) Assume that you buy a 3-year bond today. The bond has a coupon rate of 10% a yield to maturity of 10% and a face value of 1000. The bond pays annual coupons. i) Which is the price of the bond today? (5 marks) ii) Assume that you want to sell the bond after one year. The yield to maturity at this time is 8%. What is the new price of the bond? (5 marks) What is the holding period return of your investment? (10 marks) b) Assume that there are two available bonds to buy. Bond A has a maturity of 4 years, a coupon rate of 8% a yield to maturity of 6%, a face value of 1000, and it pays annual coupons. Bond B is a zero-coupon bond with a maturity of 4 years, yield to maturity of 6% and face value of 1000.- i) Calculate the Macaulay duration for both bonds. (10 marks) ii) Based on duration, which bond's price has a higher sensitivity to changes in the interest rates? iii) (5 marks) iii) Assume that yields to maturity increase by 2% for both bonds. Calculate their percentage price change as a result of the increase in the yields, using duration. (5 marks) iv) How accurate was the estimated price change using duration? Explain your answer. (max 50 words) (10 marks)