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Q1. Bond X is a 3% coupon bond. Bond Y is a 9% coupon bond. Both bonds have fifteen years to maturity and make semi annual payments and have a YTM of 6%, If interest rates rise by 2% what is the percentage price change of these bonds? What if rates fall by 2%? What does this tell you about the interest rate risk of lower coupon bonds? (Show all the necessary steps of the calculations) (25 marks)

Q2. Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

(Show all the necessary steps of the calculations) (20 marks)

Q3. Go to https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

Choose any short term bond and a real return bond and compare their yields. What is your

expectation of inflation for the coming year? (20 marks)

Q4. Because short-term interest rates are much more volatile than long-term rates, you

would, in the real world, generally be subject to much more interest rate price risk if you purchased a 30-year bond than if you bought a 30 day bond. Is this sentence true? Explain your answer referring to current bond yields (15 marks)

Q5. Wolf Corp. has a 7.5% coupon bond and pays interest semi-annually. The face value of the bond is $1000, and the current market price is $1250. The bond matures in 15 years. (20 marks)

a) What is the bond's yield to maturity?

b) What is the bond's current yield?