The following table contains information on three obligations issued by the company Altos Hornos with a nominal value of $ 1,000. Today is January 1, 2002

Coupon Expiration Years to expiration

5% 2017 5

8% 2017 15

12 5/8 2027 25

a) Why does the coupon vary so widely?

b) What is the value of each bond if kd = 8%?

c) What would the value be if the coupons were semi-annual instead of yearly? (Solve only for the five-year bond)

d) What is the nominal rate and the effective rate of return on the fifteen-year bond?

e) What is the expected price of the five-year bond within one year (January 1, 2003)

f) What is the expected total return of the five-year bond as of January 1, 2003?

g) If you were an investor able to pay taxes, which of the three bonds would you prefer and why?

h) If you thought that interest rates were going to fall, what kind of bonds would you buy to maximize your short-term capital gain?