1)

a) A bond with a face value of$100 makes quarterly coupon payments with coupon rate 8% and expires in 10 years. If the bond is currently trading for $100, write down the equation you need to solve to calculate the yield to maturity. (b) Calculate the yield to maturity and the effective annual yield. (c) Calculate the bond equivalent yield. Prove that the effective annual yield is always greater than the bond equivalent yield with quarterly coupon payments. You may assume yields are positive.