Question 3 1. Adam Company 8% coupon bonds pay interest semiannually. When you bought one of these bonds, it had 11 years to maturity, and the appropriate discount rate was 9%. After one year, the discount rate on such bonds is 7%. You are considering to sell the bond. (6 marks) a) Calculate the price at which you bought the bond. b) Calculate the price at which you will sell the bond after one year. c) What would be your capital gains yield? II. British Railway has callable bonds outstanding having maturity of 15 years. When originally issued, the bonds were sold at par. Today (January) their current market price is $1,120 per bond. The company pays a semiannual coupon payment of $45 per bond on June 30 and December 31 each year. The bond is callable in 3 years at 105% call price. (6 marks) a) As of today (January 1), what is the effective yield to maturity on these bonds? b) Determine the effective yield to call on these bonds. c) What rate of return (yield) should an investor expect? Explain your reasoning