Problem 1 (14 points) Consider a bond issued by MGM Inc exactly two years ago At that time the bonds time to maturity was 30 years The bond pays semiannual coupons with the coupon rate of 6 per year The face value of the bond is $1000 What is the bonds price today, if todays market interest rate for bonds of comparable maturity and default risk is 8 per year (5pts) You would like to speculate and believe that tomorrow the market interest rate for comparable bonds would decrease to 5 , would you buy or sell short this bond today (3pts) Suppose that exactly two years from today the price of the bond will be $900, what is the annual YTM at that time (6pts)

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Question: Problem 1 (14 points) Consider a bond issued by MGM Inc. exactly two years ago. At that time the bonds time to maturity was 30

Problem 1 (14 points)

Consider a bond issued by MGM Inc. exactly two years ago. At that time the bonds time to maturity was 30 years. The bond pays semiannual coupons with the coupon rate of 6% per year. The face value of the bond is $1000.

What is the bonds price today, if todays market interest rate for bonds of comparable maturity and default risk is 8% per year? (5pts)

You would like to speculate and believe that tomorrow the market interest rate for comparable bonds would decrease to 5%, would you buy or sell short this bond today? (3pts)

Suppose that exactly two years from today the price of the bond will be $900, what is the annual YTM at that time? (6pts)

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