1. A corporate bond matures in 15 years. The bond has an 8 percent semiannual coupon and a par value of $1000. The bond is callable in five years at a call price of $1080. The price of the bond today is $1075. What are the bonds YMC and YTC?
2. Calculate the required rate of return for Mercury inc., assuming that investors except a 5 percent rate of inflation in the future. The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent. Mercury has a beta of 2.0 and its realized rate of return has averaged 15 percent over the last 5 years.