1. The 7.9%, ten-year bond yields 5.9%. If this yield to maturity remains unchanged, what will be its price one year hence? Assume annual coupon payments and a face value of $1,000. What is the total return to an investor who held the bond over this year?

2. A government bond matures in 4 years, makes annual coupon payments of 5.9% and offers a yield of 3.9% annually compounded. Assume face value is $1,000.

   1. a) Suppose that one year later the bond still yields 3.9%. What return has the bondholder earned over the 12-month period?

   2. b) Now suppose that the bond yields 2.9% at the end of the year. What return did the bondholder earn in this case?

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