The supervisor of the Treasury Department of Nitram Computers Ltd has welcomed your analysis of Bonds A to D, and has given you another fixed-income security portfolio to analyse. The following information relates to these securities. Bond E - These bonds pay annual coupons at a fixed coupon rate of 3.8% p.a., and have 2 years to maturity. Bond F - These bonds pay annual coupons at a fixed coupon rate of 6.9% p.a., and have 3 years to maturity. Bond G - These bonds pay semi-annual coupons, on the 15th day of March and September each year, at a fixed coupon rate of 5.2% p.a., and have 3 years to maturity. Bond H - These bonds pay quarterly coupons at a fixed coupon rate of 8.4% p.a., and have 6 years to maturity. Promissory Note J - These notes were issued 115 days ago. When they were first issued they were issued as 180-day notes. All of these securities have a face value of $1000. Shown below are the current spot rates for 1, 2 and 3-year zero-coupon bonds with the same risk as bonds issues by Nitram. Year Spot Rate 1 2.4% 2 3.2% 3 3.7% What is the Yield to Maturity of Bond E if it is currently trading at a price of $1005.7? (Hint: This cannot be solved with a normal calculator. It can be solved with a financial calculator or a spreadsheet. If you don't have either you can use trial and error - test each of the following four answers until you find the correct one.)

a. 3.8% 

b. 3.4% 

c. 3.5% 

d. 3.7%

Answer rating: 100% (QA)

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