The JG Investment Bank is about to issue a new series of

10 year bonds. The bonds will have a $1000 face value and

will be rated AA by a respected Bond Rating Agency.

Currently, the yield to maturity on AA rated bonds is

250

basis points above the yield on similar maturity

government bonds. The bonds will make annual coupon payments.

a)	If the YTM on 10 year government bonds is
	2.8%	, what coupon rate should JG choose
	if it wants the bonds to sell at par?
	(1 Mark)

b)	If JG issues 1,500 bonds, how much capital
	will they raise from the sale? (1 mark)

c)	Two years later, the YTM on 8 year gov't
	bonds has		risen to		3.2%	. If the yield on
	AA rated bonds is still					250	basis points
	higher than a gov't bond, what is the new
	price of the bond?
	(note: round to the nearest cent) (1 Mark)

d)	JG's bonds now sell at					a Premium
	(1 Mark)					Par
						a Discount