Question $12[5$ marks$]$

Suppose that a bond has $10$ years to maturity and pays coupons semiannually. The bond has an annual coupon rate of $5\%$ and a face value of $$1,000.$ The yield to maturity for bonds with similar characteristics is $6\%$ per year in the market.

Find the price of the bond. $($Lecture notes p$\mathrm{.}42$ and p$\mathrm{.}35$ for terminologies$)$

Answer $($show the steps$/$calculation toward your results$)$:

Question $13[5$ marks$]$

On Dec. $31,2040,$ Tristar Aero Dynamics, Inc. $($TAD$)$ has issued a three$-$year note with a face value of $$1,000$ and no interim coupon payment. The discount rate for the firm$$s debt capital is $10\%.$

Required: $($i$)$ Compute the price of the zero$-$coupon debt as of Dec. $31,2040.$ In addition, $($ii$)$ find interest expenses and the balance of the debt principal to be reported at the end of each year, $2041$ through $2043.($Lecture note pp$\mathrm{.}40-41$ and p$\mathrm{.}53)$

Answer $($show the steps$/$calculation toward your results$)$:

Question $14[5$ marks$]$

Suppose you have the following two investment alternatives to consider:

A bond issued by the Apple, Inc. with a yield to maturity $($YTM$)$ of $5\%$

A bond issued by the City of Austin Government with a yield to maturity of $4\mathrm{.}5\%$

The two bonds are otherwise the same in terms of all other characteristics. All YTMs are given in the pretax basis. If you face an income tax rate of $20\%,$ what are the aftertax rates of return on each investment? $($Lecture notes p$\mathrm{.}48$ and p$\mathrm{.}52)$

Answer $($show the steps$/$calculation toward your results$)$: