Question
aConsider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,044.89 and has
aConsider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,044.89 and has two years to maturity. What is the bonds yield to maturity?
bWhat is the price of a perpetuity that has a coupon of $50 per year and a yield to maturity of 2.5%? If the yield to maturity doubles, what will happen to its price?
cProperty taxes in a particular district are 4% of the purchase price every year. If you just purchased a $250,000 home, what is the present value of all the future property tax payments? Assume that the house remains worth $250,000 forever, property tax rates never change, and that a 6% interest rate is used for discounting.
dA $1000-face-value bond has a 10% coupon rate, its current price is $960, and it is expected to increase to $980 next year. Calculate the current yield, the expected rate of capital gain, and the expected rate of return.
eAssume you just deposited $1,000 into a bank account. The current real interest rate is 2%, and inflation is expected to be 6% over the next year. What nominal rate would you require from the bank over the next year? How much money will you have at the end of one year? If you are saving to buy a fancy bicycle that currently sells for $1,050, will you have enough to buy it?
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