Do each of the following questions. Show all set up and work for full credit. Only formulas utilized in class presentation or formulas from the power point presentations are permissible for solving the problems in this section. All $ questions must be rounded to the nearest cent. All interest rate problems must be carried at least 5 decimal places and left in % form. Financial calculator answers for present value will not be accepted.

1. Do both of the following:

a) A $25,000 coupon bond with a $1,700 coupon payment and a yield to maturity of 8.15% has a coupon rate of

b) A consol paying $3,625 annually when the interest rate is 4.85% percent has a price of

2. Determine current yield and the approximate yield to maturity for a 4.75%, $50,000 coupon bond that is selling for $52,600 and matures in 12 years?

3. A $35,000 discount bond selling for $21,555 and maturing in 8 years has a yield to maturity of?

4. With a market interest rate of 6.25%, determine the loan amount for someone agreeing to make annual year end payments of $4,500/year for the next 5 years.

5. What was the return on a 15-year, 6.33 %, $100,000 coupon bond that was purchased one year ago for $103,250 and just sold for $99,110?

6. Determine the market price of a 20-year, 6.15%, $75,000 coupon bond when the market interest rate is 5.05%.

7. Suppose that you are an saver with a choice of three financial assets that are identical in every way except their nominal interest rate and taxability. Calculate the after tax real yield for each of the following three assets and choose which of the three assets is the best option if inflation is expected to be 2.15% annually.

Asset 1: Interest rate 6.5%, with a federal income tax rate of 26% and a state income tax rate of 4.75%.

Asset 2: Interest rate 5%, with a federal income tax rate of 26% and a state income tax rate of 0%.

Asset 3: Interest rate 4.0%, interest taxed at 0%

Part III: 8 point question. Show all set up and work for credit.

All interest rate problems must be carried at least 5 decimal places and left in % form. Financial calculator answers for present value will not be accepted.  All answers must be legible to receive credit. Partial credit is awarded.

1. Suppose you purchased a 20-year, $750,000 deep discount bond when it was initially offered. 5 years later you sell the bond and market interest rates have risen from 4.75% to 6.25%.

a. Calculate the initial price of the bond.

b. Calculate the current price of the bond.

c. Calculate the annual holding period return on this instrument and compare it to the annual return you were expecting.

d. Explain whether your return would have been relatively greater or less if you had purchased a 30-year instrument. Support your conclusion with numerical evidence.