The yield to maturity on 1-year zero-coupon bonds is currently 7.5%; the YTM on 2-year zeros is 8.5%. The Treasury plans to issue a 2-year maturitycouponbond, paying coupons once per year with a coupon rate of 10%. The face value of the bond is $100.

a.At what price will the bond sell?

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b.What will the yield to maturity on the bond be?

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c.If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year?

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d.Recalculate your answer to (c) if you believe in the liquidity preference theory and you believe that the liquidity premium is 1.5%

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