Note: Use a financial calculator or Excel c. and g. in this problem. Provide the direct answer to the question and be sure to list all of the inputs to the calculator or Excel that were necessary to arrive at your answer.
Consider a $8,000 6-yr coupon bond with a 4.25% coupon rate.
a. What price can this bond be purchased for if the market interest rate is 2.5%? (answer in long form)
b. If this bond is purchased for $9,200, what is the current yield?
c. If this bond is purchased for $9,200, what is its yield to maturity (YTM)?
d. Explain why the Current Yield is either greater than or less than the coupon rate.
e. Explain why the YTM is either greater than or less than the current yield.
f. After two years, the market interest rate has increased to 3.75%. How much can this bond be sold for? (Answer in long form.)
g. Compute the original owner’s holding period return if the bond is originally purchased for $9,200.