Problem 1: What is the yield to maturity on a 10 year, 9 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or premium tell you about the relationship between rd and the bond's coupon rate?
Problem 2: What is the current yield, the capital gains yield, and the total return in each case in the preceding question?
Problem 3: If the bond in part is callable in five years at a call price equal to $1,090.00, what is the yield to call (YTC) on the bond if its market value is $887.00? What is the YTC on the same bond if its current market price is $1,134.20?
Problem 4: What is interest rate price risk? Which bond has more interest rate reinvestment rate risk, assuming a 10 year investment horizon?