1. Valuing Bonds What is the price of a 25-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the YTM is: a. 6 percent? b. 8 percent? c. 10 percent? 2. Valuing Bonds Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity. 18 years Coupon rate: 7 percent Semiannual payments Calculate the price of this bond if the YTM is: a. 7 percent b. 9 percent c. 5 percent 3. Bond Yields Ashburn Corp. issued 25-year bonds two years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM? 4. 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 these 5. Valuing Bonds Even though most cor potate bonds in the United States make compon pxyments semiannually bonds issned elsewhere often have annual coupon payments. Suppose a German company issnes a bond with a par walue of e1.000. 27 years to maturity and a coupon rate of 3.6 percent paid annually. If the yield to maturity is 3.2 percent, what is the curront price of the bond in euros? 6. Bond Tields A Japanese company has a bond outstanding that sells for 96.318 percent of its 100,000 par valne. 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? 7. Zere Coupon Bends You find a zero coupon bond with a par value of $10,000 and 24 years to maturity. If the jield to maturity on this bond is 4.2 percent, what is the dollar price of the bond? Assume semiannnal compounding periods. 8. Valuing Bonds Yan Yan Corp. has a $2,000 par value bond outstanding with a conpon rate of 4.7 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 5.05 percent. What is the dollar price of the bond? 9. Valuing Bonds Union Local School District has a bond outstanding with a coupon rate of 2.9 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 2.7 percent, and the bond has a par value of $5,000. What is the dollar price of the bond? 10. Calculating Real Rates of Return If Treasury bills are currently paying 4.6 percent and the inflation rate is 1.9 percent, what is the approximate real rate of interest? The exact real rate? 11. 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 and Real Returns An investment offers a total return of 11.7 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 9 percent. What does Janice believe the inflation rate will be over the next year? year? 13. 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 8.5 maturing in January 2027 . What is its coupon rate? What is its bid price? What was the previous day's asked price? Assume a par value of $10,000. 15. Using Treasury Quotes Locate the Treasury bond in \There 8.5 maturing in November 2041. 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 in dollars? Assume a par value of $10,000 16. Zero Coupon Bonds You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 5.3 percent, and 25 years to maturity. If you hold the bond for the entire year, how much in interest income will you have to declare on your tax return? Assume semiannual compounding. 17. Bond Price Movements Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 6.8 percent, has a Y TM of 6.2 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 6.2 percent, has a YTM of 6.8 percent, and also has 13 years to maturity. The bonds have a par value of $1,000. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 3 years? In 8 years? In 12 years? In 13 years? What's going on here? Illustrate your answers by graphing bond prices versus time to maturity. 18. Interest Rate Risk Both Bond Sam and Bond Dave have 7.1 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds? 19. 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 hnave 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? 20. Bond Yields Williams Software has 6.4 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 106.32 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield? 21. Bond Yields Uliana Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market with a par value of $1,000 that sell for $967, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? 22. Accrued Interest You purchase a bond with an invoice price of $1,053 and a par value of $1,000. The bond has a coupon rate of 5.3 percent, and there are four months to the next semiannual coupon date. What is the clean price