On 1/1/1995 a firm issued a 20-year bond with a face value of $1,000, coupon rate 6%, paid semi-annually, trading at the price of $975. You bought the bond on 3/12/1999 at a yield of 8%. You sell the bond on 4/15/2005 at a yield of 5 3/8%. You were careful to invest all the coupons at a yield of 7 7/8% for all the (whole or partial) semi-annual periods of the holding period.

(a) Calculate: the YTM at the issue date.

(b) Calculate: the price you paid upon purchase.

(c) Calculate: the price you received upon sale.

(d) Calculate: the annualized rate of return (bond-equivalent yield) you earned during the holding period.

(e) Consider the alternative reinvestment strategy: You were careful to invest all the coupons as follows: first 4 semi-annual periods at 7 7/8% p.a.; the next four semi-annual periods at 8 3/8% p.a.; the next four semi-annual periods at 5 1/8% p.a.; the remaining semi-annual periods at 5 3/8% p.a. Calculate: the annualized rate of return (bond-equivalent yield) you earned during the holding period.

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