The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31, 2008.

Coupon payments are made semiannually (on June 30 and December 31).

a. What was the YTM of Pennington's bonds on January 1, 1979?

b. What was the price of the bond on January 1, 1984, 5 years later, assuming that the level of interest rates had fallen to 10 percent?

c. Find the current yield and capital gains yield on the bond on January 1, 1984, given the price as determined in part b.

d. On July 1, 2002, Pennington's bonds sold for $916.42. What was the YTM at that date?

e. What were the current yield and capital gains yield on July 1, 2002?

f. Now, assume that you purchased an outstanding Pennington bond on March 1, 2002, when the going rate of interest was 15.5 percent. How large a check must you have written to complete the transaction? This is a hard question! (Hint: PVIFA7.75%,13 =8.0136 and PVIF7.75%,13 = 0.3789.)