7. (a) Suppose that you have purchased a 3-year zero-coupon bond with a face value...
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7. (a) Suppose that you have purchased a 3-year zero-coupon bond with a face value of $1000 and a price of $850. If you hold the bond to maturity, what is your annual rate of return?
(b) Now suppose you have purchased a 3-year bond with a face value of $1,000, 7% annual coupon rate, and a price of $975. Assuming that you hold the bond to maturity, is the IRR greater or less than the return on the bond in part (a)?
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