1. Assuming all else is equal, which of the following bonds would you prefer if current market interest rates are 5%?
a. annual bond with a 6% coupon rate
b. semiannual bond with a 6% coupon rate
c. annual bond with 5% coupon rate
d. semiannual bond with 4% coupon rate
e. annual bond with 4% coupon rate
2. Calculate the default risk premiums, and inflation risk premiums for these three bonds. Show your formula and calculations.
A) GT10:GOV 10-year U.S. Treasury Bond, Price = $99.05, yield = 2.36%
B) GTII10:GOV 10-year TIPS Bond, Price = $98.95, yield = 0.48%
C) MSFT4389877 Microsoft 10-year bond, Price = $96.87, yield = 2.802%