Question: 4. (10) (BOND) A bond has 5 years until maturity and a coupon rate of 12% payable annually. and the market interest rate is 8%

4. (10) (BOND) A bond has 5 years until maturity and a coupon rate of 12% payable annually. and the market interest rate is 8% compounded annually. a. What is the current market price of the bond? Bond Price: b. What is the current yield? Current Yield: % c. Suppose one year from now, you need to sell this bond because of liquidity reasons. Suppose the yield to maturity is 6% when you sell the bond, what will the price be? Selling Price: $ d. What will be your before tax rate of return? Rate of return; % e. If inflation rate is 3%, what is your before tax real rate of retur? Real rate of retur: f. Explain why an investor might be indifferent between buying a 12% bond and a 6% bond. (Answer below)

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