You are considering investing in the bonds of Battaglia Inc. which currently sell for $1027.25 for each bond with a face value of $1,000. The coupon rate is 8%, paid semi-annually and the bonds mature in 25 years.

The required for this question has 2 parts:

1. If you decide to invest in the companys bonds today, what rate of return do you expect if you hold them to maturity and interest rates remain constant?
2. If you sell your bonds two years from now at a price of $1,000, what rate of return will you have earned over the two years you will have held this investment i.e. the Holding Period Yield (HPY)?