Question

Solve the first 3 questions three ways: using the PV formula “long-hand;” conceptually or short essay; using the financial calculator. Try variants of each: e.g., given the price, solve for ytm. Notice the bond’s “risk class” is described in three different ways (in bold) in these questions.

- What is the price of a 2-year bond with a coupon rate of 12%
**and an interest rate of 10%**? Face value is $1,000. There are six months before the first interest payment.- $1,019
- $1,060
- $965
- $1,035
- $1,000

- What would you be willing to pay today for a $1000 par value
bond with an 8% coupon and maturing in 12 years,
**assuming you wanted to earn a 9% annual rate of return**. Any shortcuts?

- $ 928
- $1,090
- $1,316
- $1,960

- What is the price of a $1000 face value bond that matures in
two years with an 8% coupon rate paid semiannually.
**The current yield to maturity on similar bonds is 6%**, and is not expected to change.

- $ 148.68
- $ 888.48
- $1030.00
- $1037.17

What does the zero-coupon bond's price do as it nears maturity? Explain

Answer #1

Usig financial calculator,

1. Correct option: d - $1035

N = 2 * 2 = 4 (six-monthly payments)

PMT = 12%/2 * 1000 = 60

I/Y = 10/2 = 5

FV = 1000

PV -> CPT = 1035.46

2. Correct option: a - $928

N = 12

PMT = 8% * 1000 = 80

I/Y = 9

FV = 1000

PV -> CPT = 928.39

3. Correct option: d - $1037.17

N = 2 * 2 = 4 (six-monthly payments)

PMT = 8%/2 * 1000 = 40

I/Y = 6/2 = 3

FV = 1000

PV -> CPT = 1037.17

4. As a zero coupon nears maturity, the price increases approaching the face value of the zero coupon bond.

Zero coupon bonds has offers no interest payments during the lifetime of the bond. During the term, it trades at a discount to the par and as the bond approaches its maturity, the value increases upto the face value of the bond.

Please answer Questions 4 and 12 on page 89 of the textbook, and
solve Problems 22 and 27 on page 91 of the textbook. Complete your
answer in Word, Excel, or both.
4. For each of the following situations, identify whether a bond
would be considered a premium bond, a discount bond, or a par
bond.
A bond’s current market price is greater than its face
value.
A bond’s coupon rate is equal to its yield to maturity.
A bond’s...

Please answer those three questions clearly
At 5.5 percent bond matures in seven years, pays
interest semiannually and has a yield to maturity of 6.5 percent.
What is the current market price of the bond?
$945.08
$947.21
$944.47
$962.40
Problem
(3 Points) Blue Water bonds have a face value of $1,000,
a coupon rate of 6.5 percent, semiannual interest payments, and
mature in 11.5 years. What is the current price of these bonds if
the yield to maturity (YTM) is...

Please answer the 8 questions. Thank you!
1. Cullumber, Inc., has issued a three-year bond that pays a
coupon rate of 9.4 percent. Coupon payments are made semiannually.
Given the market rate of interest of 4.0 percent, what is the
market value of the bond? Round answer to 2 decimal places
2. Ten-year zero coupon bonds issued by the U.S. Treasury have a
face value of $1,000 and interest is compounded semiannually. If
similar bonds in the market yield 11.6...

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