Question

9) what should the price be for a $1000 face value bond with a 1% coupon rate, semi-annual coupon payments, and five years to maturity if the YTM is 12%

a) $568

b)$595

c) $689

d)$1000  

10) What is future of $10 invested today, if it is invested for three years with annual compounding at a 24% interest?

a) 11.9

b) 17.2

c)19.1

d) 20.1

Answer 1

Question 9

M = $1000, n = 5 * 2 = 10 semi-annual periods, i = 12%/2 = 6% (semi-annually), C = 1% * $1000/2 = $5 (semi-annually)

P = $36.80 + $558.39

P = $595

Question 10

FV = $10 * (1 + 0.24)³

FV = $10 * 1.91

FV = $19.1