1. Bond J is a 5% coupon bond. Bond S is a 11 percent coupon bond. Both bonds have 8 years to maturity, make semiannual payments, and have a YTM = 7%. If interest rates rise suddenly by 2%, what is percentage change in price of each bond?
2. The inflation rate is 2.6%. The Yield on the T-Bill is 3.8%. What is the real rate of return. A U.S. Treasury STRIP ( zero coupon bond) maturing in 30 years is priced at $22 with a face value of $100. Assuming compounding on a semiannual basis, estimate the YTM on the STRIP.
3. One year ago, you purchased a 7 percent annual coupon bond for a price of $1,040 with ten years to maturity. What was the yield to maturity on the bond? Assume Par value is $1,000. Assume annual compounding.
4. The bond (from problem 3) now has nine years remaining until maturity. Today, the yield to maturity on this bond is 7.24 percent. How does todays price of this bond compare to your purchase price? Annual compounding.