1. Suppose that you are considering the purchase of a coupon bond with a coupon rate of 5 percent and a face value of $10,000 that matures in 3 years.

1. How much would you be willing to pay for this bond if the market interest rate is 3 percent?
2. Suppose that you have just purchased the bond, and suddenly the market interest rate rises to 4 percent. What is the bond worth?
3. Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 4 percent. How much would another investor be willing to pay for your bond? If you sold your bond at this price, what would be your rate of return?