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5. Suppose this year you buy 1.5% coupon rate, $10,000 face value bond for $10,100 that...

5. Suppose this year you buy 1.5% coupon rate, $10,000 face value bond for $10,100 that has 3 years left till maturity. Suppose next year market interest rates increase to 2.0% and you decide to sell it your bond that year.

a) Calculate the selling price of your bond next year. In another words, what price would make your bond competitive when market yields are at 2.0%?

b) Given the selling price from part (a), what was your annual rate of return from owning this bond? You can assume you kept a single coupon payment during the year you owned the bond.


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