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Bond Valuation

As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, will mature in 8 years, and have a coupon rate of 7.5% on a face value of $1000. Currently, the bonds are selling for $900.

a. If your required return is 9% for bonds in this risk class, what is the highest price you would be willing to pay? (Note: Use the Pv function)
b. What is the current yield of these bonds? If you hold the bonds for 1 year, what total rate of return will you earn? Why are these 2 number different?
c. What is the current yield to maturity on these bonds if you purchase them at the current price? (Note: Use the Rate function.)
d. If the bonds can be called in 3 years with a call premium of 4% of the face value, what is the yield to call on these bonds?(Note: Use the Rate function)

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