1. Determine the price of a perpetuity that has a coupon of $50 per year and a YTM of 2.5% ? If the YTM doubles, discuss what would happen to its price?
2. Suppose you just deposited $1,000 into the bank account. The current real IR is 2%, and inflation is expected to be 6% over the next year. What nominal rate would you require from the bank over next year? Discuss how much money would have at the end of the one year?