BCOR 340 HW 4

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 is 6.36 percent? $979.20 $984.56 $1,011.30 $1,018.27 $1,020.00

$1,011.30

The 6.5 percent bond of ABCO has a yield to maturity of 6.82 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

$32.50

Last year, Forest Products issued both 5-year and 10-year bonds at par. The bonds each have a coupon rate of 5.5 percent, paid semiannually, and a face value of $1,000. Assume the yield to maturity on each of these bonds is now 7.4 percent. What is the percentage change in the price of the 5-year bond since it was issued? The 10-year bond?

-6.48; -12.33

Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in: 20-year, zero coupon bonds. 5-year, 7 percent coupon bonds. 2-year, 7 percent coupon bonds. 20-year, 6 percent coupon bonds. 3-year, zero coupon bonds

2-year, 7 percent coupon bonds.

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?

3.80 percent

The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually. Currently, the bonds are quoted at 103.4 and mature in 4 years. What is the yield to maturity?

5.49 percent

A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments. The bond quote is 100.8. What is the amount of each coupon payment?

6.25 x 100.8 = 6.3% 1,000 x .063 = 63 63 / 2 = 31.5 per coupon payment

The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2. These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

6.35; 6.39; 6.49

National Distributors has $1,000 face value bonds outstanding with a market price of $1,013. The bonds pay interest semiannually, mature in 11 years, and have a yield to maturity of 6.87 percent. What is the current yield?

6.95% SOLUTION: N= 11(2) = 22 I%= 6.87/2 = 3.435% PV= -1013 FV= 1000 CPT PMT = $35.20 Current Yield = Annual Interest Pmt / Current Bond Price Annual Coupon Pmt = $35.20(2) = $70.40 CY= 70.40/1013= 6.95%

You own two bonds, each of which currently pays semiannual interest, has a coupon rate of 6 percent, a $1,000 face value, and 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent.

A; 8.03

What is the principal amount of a bond that is repaid at the end of the loan term called? Coupon Market price Accrued price Dirty price Face value

Face Value

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023. At this price, the bonds yield 6.4 percent. What must be the coupon rate on these bonds?

PV = $1,023 = C ×{(1 - {1 / [1 + (.064 / 2)]27}) / (.064 / 2)} + $1,000 / [1 + ( .064 / 2)]27 C = $33.28 Coupon rate = ($33.28×2) / $1,000 Coupon rate = .0666, or 6.66 percent

The 6 percent semiannual coupon bonds of IPO, Inc., are selling for $1,087. The bonds have a face value of $1,000 and mature in 11 years. What is the yield to maturity?

PV = $1,087 = [(.06 × $1,000) / 2] ×{(1 - {1 / [1 + (r / 2)]22}) / (r / 2)} + $1,000 / [1 + (r/ 2)]22 r = .0496, or 4.96 percent

New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 14.5 years, and have a 4.5 percent coupon. The current price is quoted at 97.6. What is the yield to maturity?

PV = $976 = [(.045 × $1,000) / 2] ×{(1 - {1 / [1 + (r / 2)]29}) / (r / 2)} + $1,000 / [1 + (r/ 2)]29 r = .0473, or 4.73 percent

A $1,000 face value bond currently has a yield to maturity of 8.22 percent. The bond matures in five years and pays interest semiannually. The coupon rate is7.5 percent. What is the current price of this bond? $948.01 $1,010.13 $970.96 $989.60 $1,005.26

PV = [(.075 × $1,000)/ 2] ×{(1 - {1 / [1 + (.0822/ 2)]10}) / (.0822 / 2)} + $1,000 / [1 + ( .0822/ 2)]10 PV= $970.96

A semiannual 5.4 percent coupon bond currently sells for par value. What is the maturity on this bond?

The bond could have at maturity date

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive. The clean price of the bond must equal the bond's dirty price. The bond must be a zero coupon bond and mature in exactly one year. The market price must exceed the par value by the value of one year's interest. The bond must be priced at par. There is no condition under which this can occur.

The bond must be priced at par.

Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.

semiannual

All else held constant, the present value of a bond increases when the: coupon rate decreases. yield to maturity decreases. current yield increases. time to maturity of a premium bond decreases. time to maturity of a zero coupon bond increases.

yield to maturity decreases.