Problem:
A bond has 8 years until maturity, a coupon rate of 8%, and sells for $1,100.
Required:
Question 1: If the bond has a yield to maturity of 8% 1 year from now, what will its price be?
Question 2: What will be the rate of return on the bond?
Question 3: If the inflation rate during the year is 3%, what is the real rate of return on the bond?
Note: Show supporting computations in good form.