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  3. problem 2: evolution of a bonds price over time (5

Problem 2: Evolution of a bonds price over time (5 points) (a) A five-year bond...

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Accounting

Problem 2: Evolution of a bonds price over time (5 points)

(a) A five-year bond has a yield to maturity of 1%, a face value of $1,000, and pays no coupons. Compute its price today and its price in one year, assuming that its yield to maturity stays at 1%.

Price today = ??

Price in one year: ??

(b) A five-year bond has a yield to maturity of 1%, a face value of $1,000, and pays annual coupons at a rate of 2%. Compute its price today; its price the instant before the first coupon is payed; and its price the instant after the first coupon is payed. Assume that its yield to maturity stays at 1%.

Price today = ??

Price pre-coupon = ??

Price post-coupon = ??

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