1. What is the current yield (not yield to maturity) of a bond with the following characteristics: 1,000 face, purchase price $956, 20-year maturity, 4% coupon paid semi-annually?

Enter your answer in percent format with 2 decimals.

2. What is the yield to call of the same bond mentioned in the previous problem, assuming the bond is called at the end of year 10 at a value of $900?

1,000 face, purchase value $956, 20-year maturity, 4% coupon paid semi-annually.

Enter your answer in percent format with 2 decimals.

3. Given the observed yields below, what is the 1-year forward rate, 4 years from now?

[Hint: This is the 1-year return that will take you from the 4-year average annualized return (yield) to the 5-year average annualized return)

4-year yield = 3.5%

5-year yield = 4.0%

Forward rate = [(1 + longer maturity rate)^# of periods/ (1 + shorter maturity rate)^(# of periods)] - 1

Do Not Adjust Figures for Semi-Annual Compounding. Enter your answer in percent format with 2 decimals.

4. Given the observed yields below, what is the six-month spot rate, six months from now for a bond maturing in 1 year?

6-month par yield = 1.0%

1-year par yield = 1.5%

PV = C1/(1+y1)1 + C2/(1+y2)2 + … + Cn/(1+yn)n

Hint: Assume a current price of 100 and the coupon rate is equal to the 1-year yield. Solve the equation for the unknown 6-month yield, 6 months in the future. Don't forget to adjust the coupon and yields for semi-annual compounding.

Enter your answer in percent format with 2 decimals.