1. A $1,000 par value bond with a 7.75% coupon rate (semianual interest) matures in 8 years and currently sells for $983.99. What is the bond's yield to maturity and bond equivalent yield?
2. An investor is considering the purchase of a(n) 6.000%, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000%. Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out.
3. A(n) 10.0%, 20-year bond has a par value of $1,000 and a call price of $1,150. (The bond's first call date is in 5 years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate). a. Find the current yield, YTM, and YTC on this issue, given that it is currently being priced in the market at $1,275. Which of these 3 yields is the highest? Which is the lowest? Which yield would you use to value this bond? Explain. b. Repeat the 3 calculations above, given that the bond is being priced at $925. Now which yield is the highest? Which is the lowest? Which yield would you use to value this bond? Explain.