1.Dexter Mills issued20-year bonds a year agoat a coupon rate of11.4 percent. The bonds makesemiannualpayments. The yield-to-maturity on these bonds is9.2percent. Assume the par value is 1,000 USD.

If thecurrent bond price is 1,050 USD.Should you buy the bond? What would be the price pattern for the bond?

2.Bond S is a 4 percent coupon bond. Bond T is a 10 percent coupon bond. Both bonds have 11 years to maturity, make semiannual payments, and have a yield-to-maturity of 7 percent. If interest rates suddenly rise by 2 percent. (15 marks)

a. What will the percentage change in the price of Bond S and T be? (10 marks) ans: -12.92%

b.Based on the results in part a, explain why the percentage change in price in one bond is larger than the other.

3. The yield-to-maturity on a bond is the interest rate you earn on your investment if interest ratesdo not change. If you actually sell the bond beforeit matures, your realized return isknown as the holding period yield.Suppose that today, you buy a12 percent annual coupon bond for $1,000.The bond has13 years to maturity.Two years from now, the yield-to-maturityhas declined to 11 percent and you decide to sell. What is your holding period yield?