1. High Country Marketing Corp. issues a corporate bond that has a 10-year maturity with a par value of$1,000 and pays interest semiannually. The quoted coupon rate is 6%.

(a)If the required rate of return on this bond is 8% per year. What should the issuing price be?

(b)The bond is callable in 3 years at 110% of par. What is the bond's yield to call?

(c)Currently, the bond is having an ask price of$998.91, and the last coupon was paid 35 days ago. What is the the invoice price of the bond? For simplicity, assume there are 360 days in a year.

2.Your company asks you to manage a short-term guaranteed investment contract. Your job is to create a portfolio that has a 4-year duration.

(a)If you are given the choice of using a 5-year zero coupon bond and a 3-year 8% annual coupon bond with a yield to maturity of 10%, how would you construct your portfolio?

(b)What is the modified duration of that 3-year annual coupon bond in (a)?

(c)If the yield to maturity of that 3-year annual coupon bond decreases to 8.045%, how much percentage change in price would you expect to see using modified duration?