Problem:

The City of Ames issued a new series of bonds on Jan 1, 2009. The bonds were sold at par ($1,000), have a 3.5% annual coupon rate and mature in 10 years, on Jan 1, 2019. Coupon interest payments are made semi-annually (on June 30 and December 31).

Required:

Question 1: What was the Semi-Annual Current Yield of this bond on January 1, 2012 assuming that you just paid $1,088.00 for it?

Question 2: Assuming that the market interest rate had risen to 4.5%, what should be the price of the bond on January 1, 2011 (16 coupon payments left)?

Question 3: On July 1, 2012, you purchased the bond for $850 (you purchased it just after the coupon payment was paid for June). What was the semi-annual Yield to Maturity (YTM) at that date (13 coupon payments left)?

Note: Show all workings.