Advanced Chemical Industries (ACI) issued a new series of bonds on January 1, 1994. The bonds were sold at par ($1,000), had a 10% coupon, and mature in 10 years, on December 31, 2003. Coupon payments are made on June 30 and December 31 of each year.

(a) What was the price of the bonds on January 1, 1995, one year later, assuming that the market interest rate had gone up by 4% than the previous rate? (4 Marks)

(b) Suppose, you bought the bonds on the issue date and now you would like to sell those bonds on January 1, 1995. Find the current yield and capital gain / loss yield on January 1, 1995, given the price as determined in part a. (3 Marks)