Pierson owns a garment factory in Spain and sells designer clothes to US and other European countries.

Pierson owns a garment factory in Spain and sells designer clothes to US and other European countries. He is trying to attract some investments from US that he can use to expand further into the US market. US investors are looking for stable cash flow, which is going to be a challenge given that the fashion industry is changing constantly and he can get stuck with unsold inventory. To allay their fears, Pierson decides to invest some of the capital raise into Italian 10 year Government Bonds. He explains that the return from these bonds will be used to improve his operations. Ignoring currency exposure, consider the following:

(a.) He decides to invest into 10 year 1,000 Euro Government bond with 8% coupon rate and semi-annual coupons. If the bond is currently trading for a price of 957.35 Euros, what is the bond's yield to maturity? Assume he buys 10,000 of these bonds. **Please explain how to calculate this**

(b.) Suppose he is told that the yield to maturity has increased to 15% (expressed as an APR with semiannual compounding). What price is the bond trading for now? **Please explain how to calculate this**

a) Price = 957.35Face value = 1000Semiannual coupon = 8%/2 *1000 = 40Years to maturity = 10*2 =20 Semiannual Yield to maturity = [40 + (1000-957.35)/20]/ (1000+957.35)/2]= 42.1325/978.675=...