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1. Bond X has 20 years left to maturity while Bond Y has only 5 years left till maturity. These two bonds are similar to each other in all other features and risk. The coupon rate on both bonds is 6.5% with semiannual payments. If the current market rate of interest suddenly drops from 7 percent to 5 percent, which of these two bonds will change more in value? Show calculations of each bond valuation at 7% as well as 5% and compute percentage change in price to arrive at your answer.

- Write a short paragraph explaining two kinds of interest rate risk.

A. You wants to raise $1.5 million for your new project by selling some coupon bonds at par. Comparable bonds in the market with 22 years left to maturity; have a 8.5 percent semi-annual coupon, and are selling for $825. The current market rate of interest will be set as the coupon rate for your bonds. What coupon rate would you set for your bonds?

B. What is the current price of bond if the yield to maturity is 9.5 percent; the bonds have a 8 percent coupon rate paid semiannually, and the bond mature in 14 years?

C. A bond is currently quoted at 103.7 (103.7% of par). The bond gives semiannual coupon payments of $37.75 each and matures in 7 years. Calculate the coupon rate on these bonds.

D. XYZ Corporations bonds pay interest semiannually, mature in 16 years, and have a 6.75 percent coupon rate. The bond is currently selling for 110 (110% of par). What is the yield to maturity? Current Yield? Capital Gains Yield?