Cyrus has just received his annual bonus and wants to invest it. He spent last years annual bonus frivolously and promised himself he would be more responsible this year. He noticed the recent equity market has been very strong and is concerned it is overvalued, so he is considering investing his bonus in the bond market.

He consulted his retail investment broker, and his broker recommended purchasing Rogers Communications bonds. Rogers has $1,000 bonds outstanding with a 7% coupon, payable semi-annually maturing in 5 years. His broker told Cyrus the bond is yielding 5%.

a) What is the maximum price Cyrus should pay for each $1,000 Rogers Communications bond?

b) If one year later, yields decrease to 4%, how much could Cyrus sell the bond for? (NOTE: maturity is now 4 years)

c) What would Cyruss profit or loss be on the bond if he sold it when yields dropped to 4%? What was his return on his investment? (exclude any interest payments received).