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1) Happy Corporation's five-year bonds yield= 7.75%, and five-year T-bonds yield= 4.50%. Real risk-free rate is r* = 2.45%, inflation premium for five-year bonds is IP = 1.65%, default risk premium for Happy’s bonds is DRP = 1.60% versus zero for T-bonds, and maturity risk premium for all bonds is found with formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. Compute the liquidity premium (LP) on Happy 's bonds?

2) A fifteen-year, $1,000 par value bond has the 8.75% coupon rate with interest paid semi-annually. Bond presently sells for= $900. Compute the capital gains yield on these bonds?

3) O'Brien Ltd.'s exceptional bonds have a= $1,000 par value, and they mature in twenty years. Their nominal yield to maturity is= 9.50%, they pay interest semi-annually, and they sell at price of= $825. find out bond's nominal (annual) coupon interest rate?

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