Part 1: Bond Pricing 1. Target has just issued a 20-year bond to finance its new contents. The face value of the bond is 1,000$. The bond is based in USA and pays coupon semi-annually; being the annualized coupon yield 3-375%. The current interest rate for this bond is 1.5% in semi-annual terms. (2 points) Please calculate: a. PV of the bond b. If the bond is quoted in the market at 1,060$, will you recommend the purchase? c. Is the bond a discount, par or premium bond? d. If you expect the annual interest rates to increase by 1% for the bond, what would you recommend doing? 2. (1.5 points) a. You have the following instruments; pleas calculate the PV of the following bonds (with face value 1,000 ): 6% annual coupon bond, 10-year maturity, current market yield is 6.47% 4.5% annual coupon bond, 12-year maturity, current market yield is 4.2% 4% annual coupon bond, 15-year maturity, current market yield is 5% b) Some years ago, you bought a 4.15% annual coupon bond with a face value of 1000 that had a YTM of 5% and 10 years left until maturity at that time. Suddenly you are forced to sell the bond today at the market price of 922. What is your capital gain/loss