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You are considering investing (you're a big success and can invest this amount easily) in a bond issued by Thrumbauer Inc.

The price of the bond is now: $43,550

Year	1	2	3	4	5	6	7
Expected Payments to Bond Owner	$1605.00	$1605.00	$1605.00	$1605.00	$1605.00	$1605.00	$55,155.00

Note Year 7 payment = interest and return on principal

(1) What interest (%/year) do these bonds yield today?

(2) What is the risk premium for these bonds given the following US Treasury yields?

Time to Maturity (yrs)	1	3	4	5	7	10
US Treasury Yields (%/year)	4.72%	4.18%	4.05%	3.94%	3.89%	3.79%

(3) What does the yield premium suggest about the riskiness of this bond?

(4) Your research suggests that Thrumbauer Inc. will improve its performance over the next three years.

What would you expect the risk premium to be three years from now? (Choose one)

2.75%

2.50%

2.25%

Explain your choice.

(5) Assuming no change in yields of US Treasuries, what would be the yield (%/year) on Thrombauer bonds in 3 years?

(6) What would be the expected price of the Thrombauer bonds in three years?

(7) What would be your expected return if you purchased the bond today and sold it in three years at the price calculated above?

(8)Alternatively to buying the seven year bond today, you could buy Thrombauer shares.

How would you decide to invest in Thrombauer's shares versus the seven year bond?

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