SECOND CANADIAN EDITION NELSON Question 3 (6 points) Two years ago, Faber-Overdrive Autoparts issued at par value a 20-year 8% coupon bond with semiannual coupon payments. Assume that the face value $1,000. Today (i.e., 2 years after the issuance) the market yield is 7% (Remember that the yield on the semiannual payment coupon bonds is quoted as APR with the semiannual compounding assumption). 5 (a) (3 points) If you purchase this bond today, what is your current yield? 3 (b) (3 points) You expect the market yield to decrease further to 6% in one year. If you sell the bond then, how much will be your capital gain or loss (in percentage)? (Extrag writing space on the next two pages) 40 th 10 v: l000