Company X has 8% coupon bonds on the market with 20 years to maturity. If the bonds make semiannual payments and they are sold for 97.5% of par, what is the YTM? What is the current yield? What is the effective annual yield?

Jupiter Aviation Inc. has 2 different bonds outstanding. Bond A has a face value of $35,000 and a maturity of 10 years. It makes no coupon payments over the life of the bond. Bond B also has a face value of $35,000 with 20 years to maturity. It makes no payments for the first 5 years, then pays $1,000 every 6 months over the subsequent 2 years, and finally pays $2,000 every 6 months over the last 3 years. If the required return on both of these bonds is 5%, what is the current price of bond A? Of bond B?

a) Consider Bond C a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bond? What does this problem tell you about the relationship between interest rate and bond price? (2 marks) b) Consider another bond Bond D, which is a 10% coupon bond. Similar to Bond C, it has 10 years to maturity. It also makes semi-annual payments and have a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bonds? Comparing the percentage change of bond C and bond D, what does this tell you about the interest rate risk of bonds with higher coupon rates? (2 marks)