1. You could invest in one of two callable bonds, each of which is currently callable and which both have the same maturity. The first one, Bond A, will gain 15% if rates fall 1% and lose 20% if rates go up 100bp. The second one, Bond B, will gain 22% if rates fall 1% and lose 16% if rates rise 1%. You know that Bonds A and B differ in their coupon, but you do not know which has a coupon of 7% and which has a coupon of 13%. Currently yields for both issuers are at 8%. What is the coupon on bond A?

2. Kroger Co. has a bond with a YTM of 12% and a Macaulay MD of 6yrs. It is a callable bond (currently callable) and the call price is par. The bond is currently trading at 98. What YTM is the lowest interest rate at which Kroger would consider calling the bond?

3. You observe a callable bond with a thirty year maturity and a spread of 100 bp over the comparable Treasury. What is the first call price likely to be? _____

4. A callable bond has a modified duration (based on Macauley duration) of 4.5 years. The bond is currently trading at par. The first call date has passed. If the effective duration of the bond is 2.25 when interest rates change 1%, what is the call price of the bond? (Show your work for full credit

5. A callable bond is issued at par with a coupon of 4%. If interest rates rise by 100 bp, the bond will be worth 96. If interest rates fall by 100 bp the bond will be worth 102. What is the effective duration of the bond (Show your work for full credit). _

6. T/F

. A 30 noncall life bond will experience a larger increase in value than a 30 noncall 0 bond when interest rates fall 1%. _____