The yield to maturity on 1-year zero-coupon bonds is currently 7%. The yield to maturity on 2-year zeros is 8%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 9%. The face value of the bond is $100. a) At what price will the bond sell? b) What will the yield to maturity on the bond be? 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? d) Recalculate your answer to (c) if you believe in the liquidity preference theory and you also believe that the liquidity premium is 1% (Hint: recall, the term structure of interest rates. According to advocates of the liquidity preference theory of the term structure, short- term investors dominate the market, therefore the liquidity preference theory suggests that fn > E(rn) or, in other words fn = E(rn) + liquidity premium). The yield to maturity on 1-year zero-coupon bonds is currently 7%. The yield to maturity on 2-year zeros is 8%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 9%. The face value of the bond is $100. a) At what price will the bond sell? b) What will the yield to maturity on the bond be? 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? d) Recalculate your answer to (c) if you believe in the liquidity preference theory and you also believe that the liquidity premium is 1% (Hint: recall, the term structure of interest rates. According to advocates of the liquidity preference theory of the term structure, short- term investors dominate the market, therefore the liquidity preference theory suggests that fn > E(rn) or, in other words fn = E(rn) + liquidity premium)