Question: Please Help me with question 3 and 4: Geico Corp. currently has a AA rated corporate bond outstanding, with a coupon rate of 5.35%, paid

Please Help me with question 3 and 4:

  1. Geico Corp. currently has a AA rated corporate bond outstanding, with a coupon rate of 5.35%, paid semi-annually, due to mature in three years at a par value of $1,000. If the bonds required rate of return (or yield to maturity) is 3.48%, at what price is this bond expected to sell?
  2. The City of Providence currently has an BBB rated municipal bond outstanding, with a coupon rate of 4.84%, paid semi-annually, due to mature in eight years, and callable in three years (at a call price of $1,025). If the bond has a par value of $1,000 and is currently priced at $1,046, calculate:
    1. The bonds current yield
    2. The bonds yield to maturity
    3. The bonds yield to call
  3. Based on the characteristics of the bonds, why might an investor expect the yield to maturity of the Geico bond (in Question #1) to be lower than the yield to maturity of the City of Providence bond above?
  4. Based on the characteristics of the bonds, why might an investor expect the yield to maturity of the Geico bond (in Question #1) to be higher than the yield to maturity of the City of Providence bond above?

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