Part 2: Problems. SHOW ALL WORK. A correct answer without a formula or calculator keystrokes will receive ZERO credit. Place all work and answers directly on this page.

1. Rummys Rascals Inc. has bonds with a $1000 par, 27 years until maturity, and 4.5% coupon. If you require a 4% return on the bonds, what are you willing to pay?

2. Bonds in EIVA International are selling for $970. If the coupon rate is 5.3% and the bonds have 17 years until maturity, what is the yield to maturity?

b. For the coming year, what are the expected current and capital gains yields?

c. Assume the YTM remains constant for the next four years. What will the price be four years from today?

3. (See #2) The EIVA bonds may be called in 2 years with a call premium of $60. What is the yield to call?

4. Bonds in WPR (Water Polo Rules!) pay 8.4% coupon interest semi-annually. The bonds have a $1000 par and mature in 20 years. If your required return is 8.3%, what are the bonds worth?