Question

A.

You own a bond with the following features:

              Face value of $1000, Coupon rate of 5% (annual) 8 years to maturity. The bond is callable after 4 years with the call price of $1,058.

If the market interest rate is 4.17% in 4 years when the bond can be called, if the firm calls the bond, how much will it save or lose by calling the bond? State your answer to the nearest penny (e.g., 84.25). If there would be a loss, state your answer as a negative (e.g., -37.51)

B.

Bond Features
Maturity (years) =	6
Face Value =	$1,000
Starting Interest Rate	3.84%
Coupon Rate =	4%
Coupon dates (Annual)

If interest rates change from 3.84% to 5.06% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 4 ?

State your answer to the nearest penny (e.g., 48.45)If there is a loss, state your answer with a negative sign (e.g., -52.30)

C.What is the price of a bond with the following features?

• Face Value = $1,000
• Coupon Rate = 5% (stated as an ANNUAL rate)
• Semiannual coupon payments
• Maturity = 10 years
• YTM = 3.12% (Stated as an APR)

State your answer to the nearest penny (e.g., 984.25)

Answer 1

A)