A firm issued a new series of bonds on 1/1/20. The bonds were sold at par ($1,000), have a coupon of 12%, and mature in 30 years. Coupon payments are made semi-annually (on June 30 and December 31).

a) What do you think the YTM of the bond was on 1/1/20? (no calculation necessary just think about this would have been)

b) What will the price of the bond be on January 1, 2025, 5 years later, assuming that the level of interest rates had fallen to 10 percent?

c) Calculate the current yield and capital gains yield on the bond on January 1, 2025, given the price information in part b).

d) If on July 1, 2040 the bonds sell for 896.64, what will the YTM be?

e) What will the current yield and capital gains yield be on July 1, 2040?