Question

1.A 12-year bond has a 9 percent annual coupon, a yield to maturity of
11.4 percent, and a face value of $1,000. What is the price of the bond?

2.You just purchased a $1,000 par value, 9-year, 7 percent annual coupon bond that pays interest on a semiannual basis. The bond sells for $920. What is the bond’s nominal yield to maturity?

a.         7.28%

b.         8.28%

c.         9.60%

d.         8.67%

e.         4.13%

f.          None of the above

3.A bond with 10 years to maturity has a face value of $1,000. The bond pays an 8 percent semiannual coupon, and the bond has a 9 percent nominal yield to maturity. What is the price of the bond today?

a.         $908.71

b.         $934.96

c.         $935.82

d.         $952.37

e.         $960.44

f.          None of the above

4.Interest rate risk is associated with the bonds price variability given a change in the interest rates.

Suppose you have BOND A, which is a 30 year zero coupon bond and BOND B, which is a 5 year 10% coupon bond. If interest rates (YTM) change from 8% to 7% the bonds will increase in value. Suppose BOND A's price changes from $99.38 to 129.64 and the 5 year 10% coupon bond price changes from $1079.85 to $1123.01. Which bond has the greatest percentage increase in value? Record the percentage increase in value of the bond with the highest percentage change below. Write the increase as a decimal, so a 5% increase would be written as 0.0500.

5.A corporate bond that matures in 12 years pays a 9 percent annual coupon, has a face value of $1,000, and a current price of 980. The bond can first be called four years from now. The call price is $1,050. What is the bond’s yield to call?

a.         10.01%

b.         5.36%

c.         10.71%

d.         11.86%

e.         None of the above

6.The current price of a bond is 800, next year the price will be 880. The bond pays a $20 annual coupon.   What is the current yield, capital gains yield and total return?

a.         10%, 2.5%, and 12.5%

b.         10%, 2.27%, and 12.27%

c.         2.5%, 2.27%, and 12%

d.         2.5%, 10%, and 12.5%

e.         none of the above

7.What is the total return to an investor who purchases a bond for $1000 and sells the bond for $1,054 next year. Assume the bond has an annual coupon rate of 4% that is paid in two equal payments.

Record your answer as a decimal to four places after the decimal, so if your answer is 4.212111%, record your answer as 0.0421.

8.A 7-year bond has a 8 percent coupon rate with the interest paid in semi annual payments.  The yield to maturity of the bond is 12.9 percent, and a face value of $1,000. What is the price of the bond?

9.A 9-year zero coupon bond has a yield to maturity of

6.6 percent, and a par value of $1,000. What is the price of the bond?

10.Interest rate risk refers to the fluctuations in bond prices due to a change in market interest rates. Bonds with ________ time to maturity experience a ________ change in price.

a.         longer; smaller.

b.         shorter; larger.

c.         longer; greater.

d.         shorter; greater.

e.         Statements c and d are correct.

11.A bond with 10 years to maturity has a face value of $1,000. The bond can be called in four years for $1050. The bond pays an 6 percent semiannual coupon, and the bond has a 1.3 percent nominal yield to maturity. What is the price of the bond today assuming that it will be called?

Answer 1

1. Interest paid by bond = 9%*$1,000 = $90

Present Value of the bond = Present value of 1 in 12 years when YTM is 11.4% * Face Value = 0.2738*1,000 = $273.8

Present value of interest payments = Present value of an ordinary annuity of 1 at 11.4% for 12 years * Interest paid

= 6.3705 * $90 = $573.35

Price of bond = Present Value of bond + Present value of interest payments = $273.8+$573.35 = $847.15

2. Interest paid by bond = 7.5% of 1,000 = $70

Price of bond = PVIF(YTM%,9)*1,000 + PVIFA(YTM%,9)*70

920 = PVIF(YTM%,9)*1,000 + PVIFA(YTM%,9)*70

Applying each option, YTM comes to 8.28%

Answer is b. 8.28%