Questions We Can Help You To Answer

Paper instructions:

1. Suppose you purchase a 3-year, 5-percent coupon bond at par and held it for two years. During that time, the interest rate falls to 4%. Calculate your annual holding period return.
   
   2. Consider a one-year, 10-percent coupon bond with a face value of $1,000 issued by a private corporation. The one-year risk-free rate is 10%. The corporation has hit on hard times, and the consensus is that there is a 20% probability that it will default on its bonds. If an investor were willing to pay $775 for the bond, is that investor risk-neutral or risk averse?