As BSU analyst, you've been asked to estimate the rate that a new 30-year bond would be in order to be issued to the market. It is Jan 1, 2016. BSU just made a coupon payment (semi-annual) on its "9% 2041" bonds that mature on Jan 1, 2041. The bonds currently sell for 104 with a par value of 100. LOX has a 6% 2043 bond issue with a YTM of 7.0% (issued 15 years ago as a 40-year bond). The BSU and LOX bonds are identical in every way. (The bonds were issued on different dates, thus their coupon rates and current market prices are different.) a. What is the yield to maturity on the BSU bond

b. What is the price for the LOX bond?

c. Explain the difference in the YTM for the BSU and LOX bonds. Which bond provides the more accurate estimate of the rate required in the marketplace for BSU at this time?

d. LOX also has a 2021 semi-annual bond with a 6% coupon, a par value of 100 and a 7% YTM. Which LOX bond (5 year or 25 year) has the higher price risk and which one has the higher re-investment rate risk? Why?

(Pick one) Higher Price Risk 5 Year 25 Year

(Pick one) Higher Re-investment Rate Risk 5 Year 25 Year

e.Suppose LOX had issued another 2041-year bond 15 years ago. The only difference between this bond and the 2041-bond mentioned above is that it was issued originally with a 9% semi-annual coupon. Which of the two 2041-bonds (this one, 9% coupon, and the original one, 6% coupon) has the higher price risk and which one has the higher re-investment rate risk? Why? Ignore the call provision on both 30-year bonds for this calculation. (Pick one) Higher Price Risk 6% 9% (Pick one) Higher Re-investment Rate Risk 6% 9%

Important request.....Please do not use excel...to solve this!