You are considering an investment in two different bonds. One bond matures in seven years and has a face value of $1,000. The bond pays an annual coupon of 6% and has a 7.5% yield to maturity. The other bond is a 6-year zero coupon bond with a face value of $1,000 and also has a yield to maturity of 7.5%.

What is the price of each bond? (5 points)

What is the duration of each bond? (5 points)

If the yield to maturity of each bond were to immediately increase to 10%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)? (5 points)

If the yield to maturity of each bond were to immediately decrease to 4%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)? (5 points)

Using either the Bloomberg, Yahoo Finance, or Google Finance websites, what is the risk-free rate based on a 10-year maturity? (2 points)

Using the Morningstar website (www.morningstar.com), enter the ticker symbol for Home Depot (HD), and then click on the Bonds tab on the middle right-side of the next screen to answer the following questions:

What is Home Depot