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Four years ago, Augie's Apple Farm, Inc. issued new 20 year bonds with a 4.2% coupon rate, compounded semi-annually. The bonds have a par value

Four years ago, Augie's Apple Farm, Inc. issued new 20 year bonds with a 4.2% coupon rate, compounded semi-annually. The bonds have a par value of $1,000. The market's required rate of retum on similar securities at the time of issuance was 3.8%, compounded semi-annually. The bond indenture indicates that the call price is $1,090. Today, the yield to maturity on 16 year bonds is 2.6%, compounded semi-annually. You purchased the bond 4 years ago when it was issued. Today, Augie's issued a statement declaring that the bond has been called. a. Calculate the price you paid for the bond when you purchased it four years ago. b. Calculate the rate of return you eamed while holding the bond over the 4 year period given that it has been called. c. Calculate the rate of retum you would have earned over the 4 year period if the bond had NOT been callable and you sold it at today's market price.

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