Assume that a bond with the following characteristics is being discussed: Par Value = 100.000 Maturity = 15 years from today Coupon = 4%, with interest paid semi-annually Current Value = 106.000 (Price per $100 of par)

1. What is the current yield for this bond?

2. What is the YTM (or IRR) for an investor who purchases the bond at this price?

3. If the investor has a holding period of 10 years, is the investor guaranteed to receive the YTM that you just calculated? Why or why not? Assume no possibility of default or bankruptcy.

4. What is the expected capital gains yield for the first year that this investor owns the bond?

5. Why do bond prices move down when market interest rates move up?

6. Consider a bond with a 4.5% coupon and a 6.0% YTM. If the bonds YTM remains constant, then in one year, will the bond price be higher, lower, or the same?