Suppose you have a horizon at the end of 6 years and buy an 8-year, 8.5% coupon bond with face value of $1,000 and annual coupon payments when the applicable yield curve is flat at 10%. What would your total return be given the following cases:

a.Immediately after you buy the bond the yield curve drops to 8% and remains there until you sell the bond at your horizon date.

b.Immediately after you buy the bond the yield curve increases to 12% and remains there until you sell the bond at your horizon date.