Problem ONE:A company issued 25-year bonds AT PAR with a 4.75%couponpaid annually. After 4 years market interest rates remained unchanged. CY=______________YTM=______________CGY= ______________ What is the bonds current yield, capital gains yield & YTM?

After another 9 years the bonds price is $995 CY=______________YTM=______________CGY = ______________What is the bonds current yield, capital gains yield & YTM?

After another 6 years the bonds price is $1125 CY=______________YTM=______________ CGY= ______________ What is the bonds current yield, capital gains yield & YTM?

After another 2 years the bond is priced with a YTM of 6 percent (YTM)

PRICE=___________CY=____________What is the bonds PRICE& current yield?

Problem TWO: A 20-year, 9% semi-annual bond with a PAR value of $1,000 is currently selling for $1175 with a YTM of 7.3201%. The bond could be called after SEVEN (7) years for a CALL price of $1060.

What is the bonds YTC (Yield to Call)? ____________________________________Will they CALL the bond? ______________

Problem THREE:

Determinants of Interest Rates

Using the following DATA:

R*= 4.25%

I₁ = 2%

I₂ = 4%

I₃ = 5%

I₄₌ 6.5%

MRP = .40% ( t - 1) (NOTE: This is a PERCENTAGE, not a DECIMAL MRP!) t = number of years to maturity

DRP = 7.2%

LP = 2.8%

CALCULATE:

4 year TREASURY BOND RATE

6 year CORPORATE BOND RATE

Calculate the rate on the TREASURY BOND ______________________Calculate the rate on the CORPORATE BOND _____________________