1. Suppose that IBM bonds have a par value of $1,000, mature in 4 years, and have a 3% coupon rate paid annually. Suppose the expectation theory holds and the yield curve is flat with the YTM of 4%.

1. (5 points) Calculate the bond price [put a box around your final answer]

2. (5 points) Following part A), calculate holding period return for an IBM bond investor with a 2-year horizon and a flat reinvestment rate of 4% over the period. At the end of the 2 years, the coupon bonds are sold at the same YTM of 4%.