Problem:
Florifa Power sold $300 million of 12 year nots due December 1, 2015. The notes were sold at $99.802 per $100 with a coupon rate of 5.10%. As of December 21, 2005, they sold on the market for $98.271 per $100. If $5000 worth (face value) of bonds were purchased on December 1, 2003, with semiannual coupon payments answer the following questions:
Required:
Question 1: What is the yield to maturity on the investment?
Question 2: What is the yield to maturity on a similar investment made in December 2005?
Explain comprehensively as well as show all workings and techniques.