1. A 10% semiannual bond was issued in June of 2002 with 10 years to maturity. You purchased the bond when it was issued. Immediately after the purchase, the YTM changed to some new level X and remained at this new level for 5 years. In June of 2007 you received your coupon, the interest rates changed again to a new value of Y and you sold your bond for 103 (all of this happened in a single day).
a. If your realized return is 12% (annualized value), what is the value of X? b. What is the value of Y?
2. Seven years ago, Goodwynn & Wolf Incorporated sold a 20-year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized return for investors who bought the bonds at issuance and sold the bonds at when the bond was called.