1. Consider a 30-year U.S. Treasury bond paying 4.5 percent coupon, and selling for $1010. What is the yield to maturity?
2. You borrow $500,000 to be repaid over 20 years. Your monthly payment is $5,332.15. What is the yield to maturity or implied interest rate?
3. A 30-year U.S. corporate bond with a 6 percent coupon rate is sold to an investor at a price of $925. What is his yield to maturity? If the investor sells the bond 8 years later for $995, what is his 8-year holding period yield?.
4. You just purchased an investment at a price of $756. You will receive $1,100 at the end of 5 years. If the interest rate is compounded semi-annually, what is your yield to maturity?
5. Consider a 120-day Treasury bill selling for $920? Find the yield on the discount basis (discount yield. Find the yield on a coupon equivalent basis (investment yield). Find the effective yield.
6. An 8-year corporate bond sold to an investor at par ($1000) with a 10 percent coupon rate is called four years later at par plus one year's coupon income. What is his 4-year holding period yield?
7. You just deposited $4,000 in a savings account paying 12% for one year. Suppose that the price level is expected to grow at a rate of 3% over the course of that year. Find the expected growth rate of the purchasing power of your money. If the inflation rate turns out to be 3.75%, are you better off or worse off?
8. Consider a 30-year 8 percent bond, paying coupon semi-annually, and selling for $896.81 today (note that the yield is 9 percent). Find the holding period return if the interest rate drops to 8 percent after six months. Make sure to annualize the rate.
9. Consider a 30-year U.S. corporate bond paying 3.5 percent coupon. The bond has 17 years left to maturity and is currently priced at $980. The bond is callable in 8 years at a 6 percent call premium. If an investor can reinvest the call price at the prevailing market interest rate of 4 percent at the call date, what is his yield?
10. Consider a 5-year bond paying 8 percent coupon. The bond is currently priced at $975.Find the yield to maturity. Find the realized yield if cash flows are reinvested at the yield to maturity. Explain your answers. Find the realized yield if reinvestment rates are: 9 percent today, 10 percent in one year, 11 percent in two years, 12 percent in three years, 11 percent in four years, 10 percent in five years. Explain your answers.