Part 2: (5 Points)

Question 1

An investor has just purchased bonds for $35,000 that have a par value of $40,000, eight years remaining to maturity, and a coupon rate of 14 percent. It expects the required rate of return on these bonds to be 11 percent three years from now.

a. At what price could the investor sell these bonds three years from now?

b. What is the expected annualized yield on the bonds over the next three years, assuming they are to be sold in three years?