A portfolio manager buys $20 million par value of a 15-year bond that promises to pay 10% interest ratio per year. The reinvestment rate per period is 8%.

1. Is $20 million the price of the bond? Explain.
2. What is the ROR of the bond?
3. What will be the market price of the bond at the 8% yield?
4. Show that the economic profit of investing in the bond at the market price is $0.
5. What will be the excess return in part d)?
6. Show that at the yield 8%, the investment in the bond will grow at the annual rate of 8%.
7. Calculate the capital gain rate if the bond is bought at the market price.