A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of $1,020. The bond currently sells for $1,059.34.What are the yield to maturity and the yield to call of the bond?

A newly issued bond pays its coupons once annually. Its coupon rate is 5%, its maturity is 20 years, and its yield to maturity is 6%.

Find the price of the bond.
After one year, the bond is selling at a yield to maturity of 5.5%. Find the holding period return if you sell the bond after one year.
If you sell the bond after one year, what taxes will you owe? Assume that the tax rate on interest income is 40% and the tax rate on capital gains income is 30%.
What is the after-tax holding period return on the bond?

Problem 2. [25 points]

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of $1,020. The bond currently sells for $1,059.34.

What are the yield to maturity and the yield to call of the bond?
What would be the yield to call annually if the call price were only $970?
What would be the yield to call annually if the call price were $1,020, but the bond could be called in two years instead of five years?
Sketch the price of the bond as a function of the interest rate.

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