Currently your firm is considering issuing bonds to raise capitals. Your credit rating is AAA. Thus you believe you are able to raise capitals at a relatively decent cost (interest payment). When you look at Yield Curve, yield to maturity (discount rate) with AAA credit rating bond is 5%. Face value is $1000.

1. What is your expected price of a bond if you consider 4% annual coupon rate (annual payment) and want to borrow 5 years (maturity)? Here face (par) value is $1000. (10 points)

2. Calculate current yield of this bond (10 points)

3. If we assume the bonds rating reduces to Bbb and the bond is priced at $980, what is Yield to Maturity of the bond? (10 points)