Mr. Clark is considering another bond, Bond D. It has a 7% semiannual coupon and a $1,000 face value (i.e., it pays a $35 coupon every 6 months). Bond D is scheduled to mature in 7 years and has a price of $1,120. It is also callable in 5 years at a call price of $1,050.

1.What is the bond's nominal yield to maturity? Round your answer to two decimal places.

2.What is the bond's nominal yield to call? Round your answer to two decimal places.

3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer.

Because the YTM is_____ the YTC, Mr. Clark expect the bond to be called_________. Consequently, he would earn ________ .

f. Explain briefly the difference between price risk and reinvestment risk.

Which of the following bonds has the most price risk? Which has the most reinvestment risk?

• A 1-year bond with an 8% annual coupon
• A 5-year bond with an 8% annual coupon
• A 5-year bond with a zero coupon
• A 10-year bond with an 8% annual coupon
• A 10-year bond with a zero coupon