Consider an 8 percent (annual) coupon bond that matures in 20 years, has a par value of 1000 euros, pays coupon semiannually and is currently trading for 900 euros.

a) What is the annual promised yield to maturity of this bond?

b) Is the annual promised yield to maturity of this bond also the actual yield that the investor will obtain from this bond? What does it depend on?

c) How would the actual yield on this bond differ from the promised yield on this bond if the interest rates fall?

d) How would the actual yield on this bond differ from the promised yield on this bond if the interest rates increase?