1. Many think that owning bonds is not risky. List and briefly explain two specific reasons why owning bonds is risky. 2. Explain how a long-term bond's price is impacted in opposite directions when the required rate of return on the bond rises. 3. Do not tum in but read Question 5-1 - (ST-1) Bond Valuation: The Pennington Corporation issued a new series of bonds on January 1, 1997. The bonds were sold at par ($1,000), had a 12% coupon, and will mature in 30 years on December 31,2026. Coupon payments are made semiannually (on June 30 and December 31 ). - What was the YTM on the date the bonds were issued? - What was the price of the bonds on January 1, 2002 ( 5 years later), assuming that interest rates had fallen to 10% ? - Find the current yield, capital gains yield, and total yield on January 1, 2002, given the price as determined in Part b. - Suppose you purchase a Pennington bond for $916.42 on July 1,2020 ( 6.5 years before maturity). What are the YTM, the current yield, and the capital gains yield for that date? - Suppose instead that you purchase a Pennington bond on March 1, 2020, three months earlier than in Part d. If the going rate for a bond of this risk is 15.5%, how large a check must you write to complete the transaction? (Hint: Don't forget the accrued interest.)