Question 3

Bond A has a par value of $1000 and sells for $900. The bond matures in 6 years, and has a 6% annual coupon rate paid semiannually.

(a). Calculate the bonds current yield.

(1 mark)

(b). Calculate the bonds yield to maturity.

(1 mark)

(c). Calculate the realized compound yield for an investor with a 3-year holding period and a reinvestment rate of 7% per year over the period. At the end of the 3 years, the 6% coupon bond with 3 years remaining will have a yield to maturity of 6%.

Please show working!!!