Question

Consider a 3-year bond that pays a coupon of $500 at the end of each year. The principal of the bond is $10,000.

(a) What is the coupon rate for this bond?

(b) If the market interest rate that prevails when the bond is initially issued is 2 percent per annum, what will be the price (presentvalue) of the bond?

(c) Suppose that the maturity date on the bond was 300 years. If the market interest rate is 2 percent per annum, what is the (approximate) price of the bond?

(d) What lesson can we draw from (b) and (c) about the relative sensitivity of bond prices to changes in interest rates?

Answer #1

A 13-year, 6 percent coupon bond pays interest semiannually. The
bond has a face value of $1,000. What is the percentage change in
the price of this bond if the market yield to maturity rises to 5.7
percent from the current rate of 5.5 percent?

A 10-year, 7 percent coupon bond pays interest semiannually. The
bond has a face value of $1,000. What is the percentage change in
the price of this bond if the market yield to maturity rises to 6
percent from the current rate of 5.5 percent?

Consider a one-year maturity, $120,000 face value bond that pays
a 10 percent fixed coupon annually.
What is the price of the bond if market interest rates are 7
percent?
What is the price of the bond if market interest rates are 5
percent?
What is the percentage price change for the bond if interest
rates increase 70
basis points from the original 6 percent?

A company just issued a 5 year bond for a price
of $100 that pays coupons every 6
months. The coupon rate is 3percent per
annum, the yield is 3 percent per annum and the
principal is $100. The bond buyer was also a
company. Both the buying and selling companies are subject to a 30%
corporate tax rate.
Which of the following statements is NOT
correct? All things remaining equal, per one bond, every
6 months:
Select one:
a....

Consider a 10 year bond with face value $1,000, pays 6% coupon
annually and has a yield-to-maturity of 7%. How much would the
approximate percentage change in the price of bond if interest rate
in the economy decreases by 0.80% per year?
increase by 5.55%
increase by 5.55%
increase by 5.98%
decrease by 5.98%

Bond X is a premium bond making semiannual payments. The bond
pays a coupon rate of 7.4 percent, has a YTM of 6.8 percent, and
has 13 years to maturity. Bond Y is a discount bond making
semiannual payments. This bond pays a coupon rate of 6.8 percent,
has a YTM of 7.4 percent, and has 13 years to maturity. What is the
price of each bond today? If interest rates remain unchanged, what
do you expect the price of...

A revenue bond matures in 15 year, pays a 5.5 percent coupon
rate every 6 months, and has a face value of $5,000. The market
interest rate for similar risk and maturity municipal bonds is 4
percent. What is the current price of the bond? What would the
price be if the market was 6 percent?

Knight, Inc., has issued a three-year bond that pays a coupon
rate of 4.84 percent. Coupon payments are made semiannually. Given
the market rate of interest of 3.56 percent, what is the market
value of the bond? (Round answer to 2 decimal places,
e.g. 15.25.)

Blossom, Inc., has issued a three-year bond that pays a coupon
rate of 7.8 percent. Coupon payments are made semiannually. Given
the market rate of interest of 4.2 percent, what is the market
value of the bond? (Round answer to 2 decimal places, e.g.
15.25.)

2. Knight, Inc., has issued a three-year bond that pays a coupon
of 8.00 percent. Coupon payments are made semiannually. Given the
market rate of interest of 4.90 percent, what is the market value
of the bond? (Round answer to 2 decimal places, e.g. 15.25.)

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