ation of Future Flows Intermediate (Questions 16-28) 16. Bond Price Movements (LO2) Bond X is a premium bond making annual payments. The bond pays a 9% coupon, has a YTM of 7%, and has 13 years to maturity. Bond Yis a discount bond making annual payments. This bond pays a 7% coupon, has a YTM of 9%, and also has 13 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In three years? In eight years! In 12 years? In 13 years? What's going on here? Illustrate your answers by graphing bond prices versus time to maturity. 17. Interest Rate Risk (LO2) Both Bond Sam and Bond Dave have 7% 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%, what is the percentage change in the price of Bond Sam? Of Band Dave? If Monthly mortgage payment 1979'39 Problem 7 - 16 (page 256): Use $1,000 as the bonds' face value: Bond X Bond Y Bond prices (today) Bond prices (in one year) Bond prices in three years) Bond prices in eight years) u, expect the price of these bonds to be one In 12 years? In 13 years? What's going on here? I bond prices versus time to maturity. 17. Interest Rate Risk (LO2) Both Bond Sam and Bond Dave have 7% 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%, what is the percentage change in the price of Bond Sam? Of Bond Dave? rates were to suddenly fall by 2% 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 9%, and also has 13 longer-term bonds? 18. Interest Rate Risk (LO2) Bond J is a 3% coupon bond. Bond K is a 9% coupon bond. Both bonds have 15years to maturity, make semiannual payments and have a YTM of 6%. If interest rates suddenly rise by 2%, what is the percentage price change of these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about the interest rate risk of lower coupon bonds? 19. Bond Yields (LO2) Oak Bay Software has 9.2% coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 106.8% of par. What is the YTM? The effective annual yield? 20. add to Airbutus Co. wants to issue new 20-year bonds for some much- neuded expansion projects. The company currently has 8% coupon bonds on the for $030 make semiannual payments, and mature in 20 years. Whal Bond prices (in 12 years) Bond prices (in 13 years) Answer question Problem 7 - 18 (page 257): Use S1,000 as the bonds' face value: Bond K Bond J Bond prices (YTM 6%) Bond prices (YTM 8%) % Change in bond prices Bond prices (YTM 4%) % Change in bond prices Hint - % change = (new price - old price) / old price Answer question 18. Interest Rate Risk (LO2) Bond J is a 3% coupon bond. Bond K is a 9% Both bonds have 15 years to maturity, make semiannual payments and have a YT 6%. If interest rates suddenly rise by 2%, what is the percentage price change of to bonds? What if rates suddenly fall by 2% instead? What does this probleme coupon be price of Bond prices versus YTM. What does longer-term bonds? about the interest rate risk of lower coupon bonds? - 19. Bond Yields (LO2) Oak Bay Software has 9.2% coupon bonds on the market wie years to maturity. The bonds make semiannual payments and currently sell for 10 of par. What is the YTM? The effective annual yield? 20. Bond Yields (L02) Airbutus Co. wants to issue new 20-year bonds for some needed expansion projects. The company currently has 8% coupon bonds market that sell for $930, make semiannual payments, and mature in 20 yea coupon rate should the company set on its new bonds if it wants them to sell 1. Accrued Interest (LO2) You purchase a bond with an invoice price of $1 bond has a coupon rate of 6.8%, and there are four months to the next coupon date. What is the clean price of the bond? Hint - % change = (new price -old price) / old price Answer question Problem 7 - 19 (page 258): Fill in the following: YTM Effective annual yield Problem 7-21 (page 258): Fill in the following: What is the clean price of the bond? Problem 7-23 (page 258): Fill in the following: Bond maturity in years and months sell for Vis 20-year bonds for some 19. Bond Yields (LO2) Oak Bay years to maturity. The bonds make semiannual paynen of par. What is the YTM? The effective annual yield? 20. Bond Yields (LO2) Airbutus Co. wants to issue new bonds I years, needed expansion projects. The company currently has 8% coupon market that sell for $930, make semiannual payments, and mature in 20 coupon rate should the company set on its new bonds if it wants them to sell 21. Accrued Interest (LO2) You purchase a bond with an invoice price of $1$ bond has a coupon rate of 6.8%, and there are four months to the next sem about the coupon date. What is the clean price of the bond? 22. Accrued Interest (LO2) You purchase a bond with a coupon rate of 7.3% and ac price of $945. If the next semiannual coupon payment is due in two months, w the invoice price? 23. Finding the Bond Maturity (L02) Colwood Corp. has 8% coupon bonds annual payments with a YTM of 7.2%, current market value of $1,059.6. He years do these bonds have left until they mature? 24. Bond Quotes (LO5) Suppose the following bond quotes for IOUC appear in the financial page of today's newspaper. Assume the bond has a