Question: Suppose a coupon bond with a par value of ($ 1,000) pays a semiannual coupon payment of ($ 20). (This is fair-priced at issue at

Suppose a coupon bond with a par value of $\$ 1,000$ pays a semiannual coupon payment of $\$ 20$. (This is fair-priced at issue at an annual rate of $4 \%$.)

(a) Now, suppose the annual interest rate has risen to 6\% (3\% semiannually). What is the fair market price of this bond if the remaining time to maturity is 2 years?

What is the fair market price of a zero-coupon bond with everything else being the same as the previous question?

(b) Now, suppose the annual interest rate has dropped to $3 \%$. What is the fair market price of this bond if the remaining time to maturity is 2 years?

What is the fair market price of a zero-coupon bond with everything else being the same as the previous question?

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