Homework #4 Chapter 7

You find a zero coupon bond with a par value of $10,000 and 23 years to maturity. The yield to maturity on this bond is 4.5 percent. Assume semiannual compounding periods

3593.74 N= 23 x 2 I/Y= 4.5/2 FV= 10,0000 PV= 3593.74

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?

Face Value

The current yield is defined as the annual interest on a bond divided by the:

Market price

A bond's principal is repaid on the ____ date.

Maturity

West Corp. issued 10-year bonds two years ago at a coupon rate of 7.5 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?

N= 16 PV= 1050 PMT= 75/2 FV= 1000 I/Y= 3.341(2) = 6.68%

Wesimann Co. issued 13-year bonds a year ago at a coupon rate of 7.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.2 percent, what is the current bond price?

N= 24 I/Y= 6.2%/2 PMT= $79/2 FV= 1000 PV= $1142.41

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the:

market price of the bond will decrease.

An investment had a nominal return of 10.5 percent last year. The inflation rate was 4.3 percent. What was the real return on the investment?

r = [(1 + .105)/(1 + .043)] − 1 = .0594, or 5.94%

The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8 percent is referred to as the:

yield to maturity.