(This question is not cumulative)

a) Watters Umbrella Corp. issued 12-year bonds 2 years ago at a coupon rate of 7.8 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM? (Write down the expression for YTM and then use a financial calculator or a spreadsheet program to find the answer)

b) Five years ago, an investor bought a 12-year zero-coupon bond with a $1, 000 par value and 7 percent yield to maturity. Today, the market interest rates are 4.5 percent. What is the price of this bond now? How much money has the investor gained/lost? What is her annual holding period return?