Question 1 (20 points)

Bonner Metals has 12% coupon bonds on the market that sell for $1,586.39, make semi-annual payments, mature in 25 years, and has a face value of 1000. (a) [5 points] What is the bonds yield to maturity x%? (Choose between: 6.5%, 7% or 7.5%) (b) [5 points] What is the bonds current yield of the bond? (c) [5 points] Suppose the firm wants to sell a new bond with the same risk as the bond described above. What should the coupon rate be on the new bond if the firm wants to sell it at par [Hints: no calculation is required!]? (d) [5 points] Continue with part (a). Suppose you bought this bond at Time 0 at $1,586.39. Three years later immediately after the coupon was paid, the bonds yield to maturity lowers by 2% (for example, it decreases from x% to x-2%), and you decide to sell the bond.

Over this 3-year period, you have been investing the coupons at an APR of 6%, compounded semi-annually. What is your return of your investment over this 3-years period?