1.

An investor just purchased a annual 12 year bond that pays $50 each year for 12 years, and $1,000 in the final year. The investor believes she can reinvest the coupon payments each year at a $6.25%, interest rate.

If the yield to maturity on the bond is $4.75%, then what is the price of the bond?

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How much money will the investor have in 12 years, if he reinvests the coupon payments at the $6.25% interest rate?

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2.

An investor has the choice of purchasing a 15-year bond, that has a coupon payment of $55, each year plus its par-value in the final year. The current price of the bond is $1,079.18. If the investor, believes they can re-invest the coupon payments at a 5.5% interest rate. How much money will the investor have in 15 years?

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Suppose there is a zero-coupon bond, that has the same yield to maturity, and maturity date as the three-year bond. How, many zero-coupon bonds would the investor need to purchase to have the same total cash flow, as the 15-year coupon paying bond. (Assume the investor can buy partial bonds.)

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