Scotiabank sells a bond for $955. It has a 12% coupon interest rate and a $1,000 par value, pays interest annually, and has 15 years to maturity.

i. Calculate the yield to maturity on this bond. 2 marks

ii. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. 2 marks

d. Danno is trying to decide which of two bonds to buy. Bond H is a 10% coupon bond with 10 years to maturity, $1000 par value, paying annual interest. Bond F is a 10% coupon bond, also with 10 years to maturity, $1000 par value, but pays semi-annual interest. The required rate of return for each bond is 10%.

Danno has sufficient money to purchase one bond. Which bond should he purchase? 2 marks

e. Distinguish between a bullet bond and a callable bond. Why do firms prefer to issue callable bonds? 2 marks

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