An investor is considering the purchase of a 20-year 7% coupon bond selling for $816 and a par value of $1,000. The yield to maturity for this bond is 9%. Assume the investors horizon is 15 years. Market participants expect the yield rate for comparable issues to be 10% for the first 10 years and 6% for years 11 to 20. The goal here is to calculate the Total Return for this investment following the 3-spet procedure we used in Question#5 on Lab#3.

1. What is the projected sale price at the end of year 15?

2. What is total coupon payments plus the interest on interest at the end of year 15?

3. What is the ANNUALIZED total return in percentage?

4. Suppose that a 8% 20-year bond with semiannual payments has the following call structure:

-not callable for the next 3 years

-first callable in 3 years at $101

-first par call date is in 5 years

-first putable in 10 years at par

The price of the bond is $105.

Will this bond issue be called?

5. In previous question, what is the annualized yield to worst? Write your answer in percent with 2 decimal places.

6. An investor is considering the purchase of a 12-year 3% coupon bond, with annual coupon payments, selling for $1051.29 and a par value of $1,000. The yield to maturity for this bond is 2.5% compounded annual. Calculate the interest on interest from the bond assuming that the annual coupon payments can be reinvested at 2.5% every year.