Question: A $1000 face value bond has a 6 percent coupon, with interest paid annually. The bond will mature 10 years from today. Assume that the bond’s price today is $950.

1. What is the yield to maturity?
2. Assume that you buy the bond today for $950 (with 10 years until maturity), and sell it for $1,000 one year from now (with 9 years to maturity), immediately after receiving the coupon payment. What was your one period holding period return (this is a %!)? Did interest rates increase or decrease over this one year holding period?

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