The Jimmy Corporation issued a new series of bonds on January 1, 1991. The bonds were sold at par ($1000), have a 12% coupon rate, and mature in 30 years, on December 31, 2020. Coupon interest payments are made semiannually (on June 30 and December 31). An investor has been interested in these bonds.
(a) What was the yield-to-maturity (YTM) of the bond if the investor bought it on January 1, 1991?
(b) Assume that the level of interest rate fell to 9% on January 1, 1998. This meant that the coupon rate of newly issued bonds with quality similar to the Jimmy Corporation's bond was set at 9% with interest paid semiannually. Assume such newly issued bonds could be bought at par ($1000) and had the same maturity date as the Jimmy Corporation's bond. What was the YTM of these newly issued bonds? What was the maximum amount that the investor was willing to pay for the Jimmy Corporation's bond on that date?
(c) On July 1, 1998, the investor bought the bonds for $922.38. What was the YTM at that date? What was the current yield at that date?