1. Consider a 15 year bond with a face value $1000, pays 5.75% per year coupon semi annually and has a yield to maturity of 7.25%. How much would the price of bond change if interest rate in the economy increases by 0.25% per year?
2. If you expect to hold a stock for two years, predict that the yearly dividend will be $1 per year, and sell the stock for $110 two years later. The current market interest rate is 5% but you want to earn 7% annual return from this investment. What is the price you should pay for the stock?