Consider $7-$year bonds with a coupon of $8\mathrm{.}375$ percent and are currently worth $$1,063\mathrm{.}49.$ The bonds can

be called in three years at price of $$1,075.$

a$.$ What is the yield to maturity of these bonds? What is the effective annual yield?

b$.$ What is the realized yield on the bonds if they are called?

c$.$ If you plan to invest in one of these bonds today, what is the expected yield on the

investment? Explain.

d$.$ if the market yield increases to $10\%$ how much will you lose if you sell the bonds? How

much would be your loss due to price$-$risk if you hold it until maturity?

Use financial calculator and formulas to calculate the answers$|$