Suppose that you can purchase a 10-year zero-coupon note (STRIP) offered by the U.S. Treasury with a par value of $1,000. Using annual compounding,
a. What is the price if the market yield is 2.50%?
b. What would the price be one year later if the market yield remains the same?
c. What is your holding period return for the one-year period?
d. What can you conclude about how you earn a return on a zero-coupon bond over time?