1)Assume that you pay $918.16 for a long-term bond that carries a coupon of 6.5%. Over the course of the next 12 months, interest rates drop sharply. As a result, you sell the bond at a price of $1 comma 035.98. a. Find the current yield that existed on this bond at the beginning of the year. What was it by the end of the one-year holding period? b. Determine the holding period return on this investment. (Hint: See Chapter 5 for the HPR formula.)
2)You are considering investing $860 in Higgs B. Technology Inc. You can buy common stock at $23.89 per share; this stock pays no dividends. You can also buy a convertible bond ($1,000 par value) that is currently trading at $860 and has a conversion ratio of 34. It pays $51 per year in interest. If you expect the price of the stock to rise to $35.68 per share in 1 year, which instrument should you purchase?
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