1. Consider an 8.5%, semi-annual 10-year bond with face value of $1,000. The bond is currently selling at $976.71, and it is callable at $1,030 in 4 years.

a. What is the YTM for this bond? What is YTC? Which yield measure an investor is likely to realize for this bond?

b. If the yield spread with a comparable Treasury is 320 basis point, what would be the price of a comparable (same coupon and maturity) Treasury? Show your work.

2. The Whitmoer Co. is currently issuing both 10-year and 20-year bonds at par. The bonds pay 8 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds. Assume that the yield to maturity on each of these bonds is 7.6 percent one year from now.

a. Determine the expected price of each bond one year from now

b. Given your results in a, determine the percent price appreciation on the 10-year bond and percent price appreciation on the 20-year bond. Which bond has a higher interest rate risk?

Please show work