Your friend borrows $750 today from you (i.e. a simple loan), and he agrees to pay you back $800 next year.

A. Calculate the yield to maturity on this loan.

B. Calculate the yield to maturity of a 2% coupon bond with a face value of $200, which is currently selling at $180, and matures two years from now. Important: Set up the problem AND solve for yield for full credit.

C. Briefly explain why an increase in the interest rate is likely to hurt those who already own long-term bonds.