Exercise 1. Consider a company that borrows 25 million by selling 250,000 individual bonds. A new issue consists of bonds with face value of 100, due in 10 years and a coupon of 8%. What is the market price of the issue if investors (lenders) require an YTM of 8% on their investment? Would the value have been different if they had demanded a different return say, 10%?

Exercise 2. You buy a 3-year bond with a coupon rate of 10%, and a face value of 100. What is the yield to maturity if you buy the bond: At the price of 100? At the price of 108?

Exercise 3. A 30-year Treasury bond is issued with a face value of 100 and a coupon of 6 per year. If market yields increase shortly after the T-bond is issued, what happens to the bonds: Coupon rate? Price? Yield to maturity?

Exercise 4. Consider a company whose outstanding bond issue has a coupon rate of 10% and sells at a yield to maturity of 9.25%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bond offer in order to sell at face value?

Exercise 5. You buy an 8% coupon, 20-year maturity bond with a face value of 100 when its yield to maturity is 9%. A year later, the yield to maturity is 10%. What is your rate of return over the year?