A Treasury bond with £100 maturity value has a £6 annual coupon and 4 years left to maturity.
i. What price will the bond sell for assuming that the 4-year yield to maturity in the market is 7%? (Show your calculations)
ii. What would be your answer to part (i) if the 4-year yield to maturity in the market is 9%? (Show your calculations)
iii. What does your answer to parts (i) and (ii) tell you about the relationship of bond prices, term to maturity and changes in bond yields? (2 marks)
