1. Interpreting Bond Yields Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate on the bond now? The YTM?

2. Interpreting Bond Yields Suppose you buy a 7 percent coupon, 20-year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?

3. Bond Prices Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 27 years to maturity, and a coupon rate of 3.6 percent paid annually. If the YTM is 3.2 percent, what is the current bond price in euros?

4. Bond Yields A Japanese company has a bond that sells for 96.318 percent of its ¥100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond?


5. Coupon Rates Nikita Enterprises has bonds on the marset making annual payments, with eight years to maturity, a par value of 91.99, and selling for $962. At this price, the bonds yield 5.1 percent. What gres re coupon rate be on the bonds?

6. Bond Prices Westco Co. issued 15-year bonds a year sgrs?: a coupon rate of 5.4 percent. The bonds make semiannual payments ent Recre a par value of $1,000. If the YTM on these bonds is 4.5 percent, whee is she current price of the bond in dollars?

7. Bond Yields Ashburn Co. issued 25-year bonds two yers ago at a coupon rate of 5.6 percent. The bonds make semiannual paymerts sf these bonds currently sell for 97 percent of par value, what is the YTM:

8. Coupon Rates Draiman Corporation has bonds on the market with
14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $987. The bonds make semiannual payments. What must the coupon rate be on the bonds?

10. Inflation and Nominal Returns Suppose the real rate is 1.8 percent and the inflation rate is 2.7 percent. What rate would you expect to see on a Treasury bill?

12. Nominal versus Real Returns Say you own an asset that had a total return last year of 14.1 percent. If the inflation rate last year was 2.83 percent, what was your real return?

14. Using Treasury Quotes Locate the Treasury bond in Figure 6.4 maturing
in February 2037. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread for a $ 10.000 par value bond?
years. in l2 years. In 13 years. Whats going
on here? Illustrate vow answers by graphing bond prices versus time to maturity.
LO 2
19. Interest Rate Risk
Sots hond Sam and Bond Dave have 7.1 percent
coupons, make scansariend payments, and are priced at par value. Bond Sam has three years terspeursty, whereas Bond Dave has 20 years to maturity. If interest rates suddenly gise by 2 percent, what is the percentage change in the price of Bond bam? Of Bond Dave? If rates were to suddenly fall by 2 percent insteed, weat would the percentage change in the price of Bond Sam be then? Of Bond Dave? Iliustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?
LO 2
20. Interest Rate Risk Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 18 years to maturity, make semiannual payments, and a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?



26. Zero Coupon Bonds Suppose your company needs te raise $65 million
and you want to issue 20-year bonds for this purpose. kasame the required return on vour bond issue will be 4.9 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 4.9 percent and a zero coupon bond. The tax rate is 21 percent. Both bonds will have a par value of $1,000.
a. How many of the coupon bonds would you need to issue to raise the $65 million? How many of the zeroes would you need to issue?
In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeroes?
C.
Based on your answers in parts (a) and (b), why would you ever want to issue the zeroes? To answer, calculate the firm's aftertax cash outflows for the first year under the two different scenarios. Assume that the IRS amortization rules apply for the zero coupon bonds.

solve these questions without excel. do it by hand