1. Today is a day in December 2525 and a bond with annual coupon rate of 3.70% just yesterday paid a coupon. The bond matures in December 2532 and its quoted bond price is 89.09 percent of par (semiannual compounding). Find the current yield and capital gains yield. (Show work, timelines (if applicable) and formulas.

A. Current yeild 4.15% and capital gains 1.46%

B. Current yeild 5.38% and capital gains 1.46%

C. Current yeild 4.15% and capital gains 1.77%

D. Current yeild 3.54% and capital gains 1.18%

E. Current yeild 5.38% and capital gains 1.18%

2. Small banks tend to make more loans to small local businesses, and the rates on these loans are typically lower than the rates that larger banks charge on the loans they provide to large businesses.

a) True b) False