HV company is planning on issuing 20 year bonds the bonds will have a $1000.00 face value and will be rated AA by respective bonding agency. The yield to maturity on AA bonds is 240 basis points above the yield on similar maturity government bonds. The bonds will make annual coupon payments.

1. If the YTM on 20 year gov bonds is 2% what coupon rate should HV choose if it wants the bonds to sell at par?

2. If HV issues 2000 bonds how much capital will they raise from the sale?

3. Five years later the YTM on 15 year gov. bonds has risen to 2.4%. If the yield on AA bonds is still 240 base points higher than a government bond what is the new price of the bond?

4. HV's bonds will now sell at ( Check only 1 box) Premium__________or Par____________or Discount____________