2. Use the following information to answer the following questions:

XLR Corporation just issued a $1,000 par value bond with a 7% yield to maturity, twenty years to maturity, with an 8% semi-annual coupon rate.

a. What is the price of the XLR Corporate bond?

b. If market interest rates are constant, what will the price of the XLR Corporate bond be in three years?

c. If market interest rates rise to 10%, what will the price of the XLR Corporate bond be in three years?

3. Use the table below to answer questions;

year 1-year forward rate

1 5.80%

2 6.40%

3 7.10%

4 7.30%

5 7.40%

a. What should the purchase price of a 2-year zero coupon bond be if it is purchased at the beginning of year 2 and has face value of GHS 1,000?(3 marks)

b. What would the yield to maturity be on a four-year zero coupon bonds purchased today?(3 marks) c.d. Calculate the price at the beginning of year 1 of a 10% annual coupon bond with face value GHS 1,000 and 5 years to maturity.

4. A local mutual fund says it has expertise in identifying stocks that are undervalued because they are under researched or unpopular. To prove its point, the fund produces evidence that it returns over the past four years was 3% above the return on the market index.

a) What does efficient market hypothesis (EMH) say about undervalued stock?

b) Does the fund's evidence contradict the EMH?