Q 4

. A bond has a face value of $2000, a coupon rate of 6% and matures in 10 years time. If its current yield to maturity is 8% what is the current price of the bond? If the yield falls to 4% determine the bond price. What do these results indicate about the relationship between the price of a bond and its yield to maturity?

B. You are asked to put a value on a bond which promises eight annual coupon payments of 70 and will repay its face value of 1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9 per cent. How much is this bond worth? You are offered the bond for a price of 1030.44. What yield to maturity does this represent?

C. As a financial manager, you have been approached by an investor seeking to understand the capital market efficiency. Discuss the differences between weak form, semi-strong form and strong form capital market efficiency using relevant literature and examples.