1. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $890. The bonds may be called in 4 years for 120.0% of the par value ($1200). What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity?

2. BBB, Inc. bonds have a par value of $1,000, a 33-year maturity, and an annual coupon rate of 12.0% with annual coupon payments. The bonds are currently selling for $923. The bonds may be called in 4 years for 112.0% of par ($1120). What quoted annual rate of return do you expect to earn if you buy the bonds and company calls them when possible?

3. Define and explain the following terms(in own words):

Secured versus unsecured debt:

Senior versus subordinated debt:

4. Compare 30-year bond to a 5-year bond all else equal. Which one is more sensitive to interest rate changes. Why? Please explain.