**1. **Consider a five-year bond paying 10 percent coupon annually. The bond is priced at $1,200.

**a. **Find the yield to maturity.

**b. **Find the realized yield, assuming that coupons are reinvested at the yield to maturity.

**c. **Find the realized yield, assuming that coupons are reinvested at the following rates: r0=9%, r1=9.5%, r2=10%, r3=10.5%, r4=11%, r5=11.5%.

**d. **Refer to part (c). Explain why the yield is different than the yield to maturity.

**2. **An 8^{1/2 }30-year US corporate bond is callable in 12 years. It is currently sold at a price of $960. The call premium is 10 percent. The prevailing market interest rate at the call date is 8 percent.

**a. **What is the yield to call to an investor who does not reinvest the call price at the prevailing interest rate at the call date?

**b. **What is the yield to call to an investor who reinvests the call price at the prevailing interest rate at the call date?

**3. **Consider a 90-day Treasury bill whose price is 94.5%.

**a. **Find the yield on a discount basis.

**b. **Find the yield on a coupon equivalent basis.

**c. **Find the effective yield.

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