On January 1, 1990 Affiliated Properties Company issued 7.5%, 30 year bonds. Interest rates fell substantially in the years following the issue. In January 2005, 15 years later, the price of the bonds had increased from $1,000 to $1100. In answering the following questions, assume that the bond requires semi-annual interest payments.
A. Each bond originally sold at its $1,000 par value. What was the yield to maturity of these bonds when they were issued?
B. What was the yield to maturity on January 1, 2005? Answer Given: 6.45%
C. What was the bond's current yield on January 1, 2005?
D. What was the capital gain yield on January 1, 2005?
E. Assume that interest rates stabilized at the 2005 level and stay there for the remainder of the life of the bonds. What would be the bonds' price in February 2015, when they have 5 years remaining to maturity?
F. What will the market price of the bonds be the day before they mature in 2020? (Disregard accrued interest.)