For these and all bond problems, assume semiannual coupons and $1,000 par value unless you are told otherwise. Also assume that a bond price shown without a currency symbol is being expressed as a percent of par value.

1. What is the price of a 10 year, 4% coupon rate bond if the required rate of return = 6%?

2. What is the price of a 15 year, 7% coupon rate bond if the required rate of return = 5%?

3. What is the price of a 20 year zero coupon bond if the required rate of return = 5%?

4. What is the yield to maturity on a 10 year bond with price = 95, coupon rate = 3%?

5. What is the yield to maturity on a 20 year bond with price = 102.50 and coupon rate = 4%?

6. What is the yield to maturity on a 15 year zero coupon bond if the price is 65?

7. What are the current yields on the bonds in #4, #5, and #6?

8. You buy the ABC corporation 4% 10-year bond for 102:4. You hold it for 4 years, collecting 8 coupons and selling for 101:00 at the end. What was your realized yield?

9. What is the price in dollars of the following bonds?

Treasury bonds	Dollar price =		Corporate bonds	Dollar price =
101:30			102:1
96:8			99:6

10. Two bonds have coupon rate = 4%, and both are priced at par. Bond A maturity = 10 years; Bond B maturity = 25 years.

a.What is the YTM for each bond?Hint: you do not need a calculator for this one.

b.If the Required YTM for each bond were to immediately increase to 5%, what is each bonds new price?

c.If the required YTM for each bond were to immediately decrease to 3%, what is each bonds new price?

d.What do these examples tell you about bond price sensitivity to interest rates and bond maturity?

11. Two bonds mature in 20 years. Bond X has coupon rate = 4% = YTM. Bond Y has coupon rate = 5% = YTM.

a.What is the price of each bond?Hint: you do not need a calculator for this one.

b.If the required YTM for each bond were to immediately increase by 1%, what is each bonds new price?

c.If the required YTM for each bond were to immediately decrease by 1%, what is each bonds new price?

d.What do these examples tell you about bond price sensitivity to interest rates and coupon rate/coupon?

12. For each of the following pairs of bonds, indicate which of the two bonds has the greater interest rate risk.

a.4%, 7year 6% 7 year

b. zero-coupon 10 year 3% 10 year

c. 5% 8 year 5% 12 year

13. You are a professional manager of a $100,000,000 bond portfolio. Your goal is to maximize the value of your investors holdings at all times. You are required to remain fully invested in bonds at all times. You are given the following four bonds:

3%, 5-year 6%, 5-year 6%, 10-year 3% 10-year

a. If you know (before anyone else in the market) that interest rates are going UP next week, which one of these four bonds would you most want to own?

b. If you know (before anyone else in the market) that interest rates are going DOWN next week, which one of these four bonds would you most want to own?

14.What is the duration of a bond with 5% coupon rate, annual coupons, 3 years to maturity and YTM = 6%?

15. What is the duration of a bond with 5% coupon rate, annual coupons, 2 years to maturity and YTM = 6%?

16. What is the duration of a bond with 2% coupon rate, annual coupons, 3 years to maturity and YTM = 1.5%?

17. What is the duration of a 3 year zero coupon bond with yield to maturity = 1.5%?

18. The bond price/yield relationship, when graphed, is not linear. The curved-ness of the graph is referred to as ________.