Wagenheim, Inc. has just issued a 20-year maturity, 6% semi-annual coupon bond with a par value of $1,000. The required return (r_d) on such bonds is 5.5% and the bond is callable in 5 years with a call premium equal to one years coupon payments.

a) What is the fair price of this bond? (5 pts)

b) What is the current yield of the bond? What is the capital gains yield? (6 pts)

c) What is the yield to call (YTC)? (5 pts)

d) Assume that 3 years have elapsed and interest rates remain unchanged. The bond is now selling for $1,015. What is the yield to maturity (YTM)? Is it a bargain or is it overpriced?