a) On January 1, 2012 you purchased a $1,000 par, 10 year U.S. Treasury note with as

Question:

a) On January 1, 2012 you purchased a $1,000 par, 10 year U.S. Treasury note with as semiannual coupon rate of 3%. If the bond is currently trading at $945.50, what is its yield to maturity (YTM)?

b) Consider two coupon bonds, each of which pays semiannual coupon payments and has 5 years left until maturity. The first bond has a coupon rate of 5% and the second bond has a coupon rate of 10%. Both bonds have a yield to maturity of 8%. By what percentage will the price of each bond change if its yield to maturity decreases from 8% to 6%?

c) A bond that matures in 8 years has a par value of $10,000, an annual coupon payment of $700; its market interest rate is 9%. What is its price?

d) Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000. Suppose that one year later the going rate drops to 6%. What is the new price of the bonds assuming that they now have 19 years to maturity?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...