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Mr. Simpson buys a $1000 bond paying bond interest at j2= 6.5% and redeemable at par in 20 years. He desires a yield rate of

Mr. Simpson buys a $1000 bond paying bond interest at j2= 6.5% and redeemable at par in 20 years. He desires a yield rate of j4= 7%.

(a) How much did he pay for the bond?

(b) After exactly 5 years he sells the bond. Interest rates have dropped and the bond is

sold to a buyer to yield at j1 = 5%. Find sale price.

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