1. A 15-year Treasury bond is issued with face value of $1,000, paying interest of $64 per year. If market yields increase shortly after the T-bond is issued, what is the bond's coupon rate?

2. A General Power bond carries a coupon rate of 9.8%, has 9 years until maturity, and sells at a yield to maturity of 8.8%. (Assume annual interest payments.)

a.What interest payments do bondholders receive each year

3. One bond has a coupon rate of 5.4%, another a coupon rate of 8.2%. Both bonds pay interest annually, have 13-year maturities, and sell at a yield to maturity of 8%.

a.If their yields to maturity next year are still 8%, what is the rate of return on each bond?(Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

b.Does the higher-coupon bond give a higher rate of return over this period?

4. General Matter's outstanding bond issue has a coupon rate of 8.6%, and it sells at a yield to maturity of 7.75%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value?(Enter your answer as a percent rounded to 2 decimal places.)

5. Consider three bonds with 5% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

a.What will be the price of the 4-year bond if its yield increases to 6%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

b.What will be the price of the 8-year bond if its yield increases to 6%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

c.What will be the price of the 30-year bond if its yield increases to 6%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity.

Years to Maturity

Price, (% of face value)

1

96.952

%

2

93.451

3

89.644

4

85.580

a.What is the 1-year interest rate?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b.What is the 2-year interest rate?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c.What is the 3-year interest rate?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

7a.Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 8%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the price of the bond now? (Assume semiannual coupon payments.)(Do not round intermediate calculations. Round your answer to 2 decimal places.)

b.Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)