Please show all work (Indicate formula or calculator inputs used)

1. Bond Values and Yields

a) Consider a bond with a coupon rate of 10% and annual coupons. The par value is $1,000, and the glue has 5 years to maturity. The yield to maturity is 11%.

• Is this a discount or premium bond?
• What is the value of the bond?
• What is the current yield on the bond?

b) Suppose you are reviewing a bond that has a 10% annual coupon and a face value of $1000. There are 20 years to maturity, and the yield to maturity is 8%.

• Is this a discount or premium bond?
• What is the value of the bond?
• What is the current yield on the bond?

2. Bond Features, Ratings, Types and Markets

Suppose the last coupon was paid 50 days ago and there are 182 days in the current coupon period. The semiannual coupon payment is $40.

a. What is the accrued interest?

b. If the clean price is $953, what is the dirty price?

3. Interest Rates and Bond Yields

a) Last year, Alex earned 14.59% on his investments. The inflation rate was 4.3% for the year. What was his real rate of return for the year?

b) George is considering investing $10,000 for one year. He would like to earn a real return of 9% on his investment. He expects inflation to average 3.25% over the coming year. What nominal rate of return does he need to earn?