Homework #$3$

A$)$ A new bond was issued from a utility company was just issued. The bond has a coupon

rate of $7\%$ compounded semi$-$annually and a life of $10$ years. The face value $($Par Value$)$ of

the bond is $$1,000.$ Draw the bonds time diagram and calculate what would you pay for the

bond today?

B$)$ Two years later, assume interest rates drop to $4\%$ compounded semi$-$annually for like

kind securities in the market, what is the value of the bond now?

C$)$ Assume someone purchased the bond in year $2$ of the bond for $$1,150$ instead of the

value you calculated in part B$.$ If that person holds the bond until maturity $(8$ years remain$)$

what is the Yield to Maturity $($YTM$)$ on the bond?