Problem 1: A 27-year coupon bond with a face and redemption value of $1,000 has a coupon rate of 16% per annum payable semiannually and a yield to maturity of 12% per annum compounded semiannually. Algebraically find the price of the bond. Your final answer should be correct to 2 places after the decimal point. The Price is ________________________

Problem 2: Betty and Bob buy a 20-year bond with a coupon rate of 8% per annum payable semiannually and a redemption value of $100. If they paid $126 then using The Salesmans Rule approximate the per annum yield to maturity. Your final answer should be correct to 4 places after the decimal point. The yield to maturity is __________ per annum.

Problem 3: A 14-year Zero Coupon Bond with redemption value of $100 is priced at $29.1571. Algebraically find the yield to maturity. Your answer must be stated as a per annum rate compounded semiannually. Your final answer should be correct to 2 places after the decimal point. The yield to maturity is __________per cent per annum compounded semiannually. In Problems 4- 7 Betty and Bob buy an 18-month special bond with coupons of $8, $11, and $5 in that order and a maturity value of $100. The bond is originally priced to yield 12% per annum compounded semiannually. Your final answers should be correct to 2 places after the decimal point.

Problem 4: Algebraically find the original price of the bond. The price is _________________.

Problem 5: Find the Macaulay Duration. State your answer in years. Your final answer should be correct to 2 places after the decimal point DM = __________________years.

Problem 6: Find the price of the bond after 7.5 months. The price is __________________.

Problem 7: If the reinvestment rate equals the yield to maturity then algebraically find the terminal wealth of the bond after 7.5 months. The terminal wealth is __________________

Problem 8: Betty and Bob must construct the ZCB yield curve for Freedonia. Freedonia has bonds of 6 months, 12 months, 18 months, and 24 months terms. A 6-month ZCB with maturity value of $100 is priced at $94.3396. A 1-year coupon bond with maturity value of $100 and a coupon rate of 8% per annum, payable semiannually is priced at $94.6112. An 18-month coupon bond with maturity value of $100 and a coupon rate of 19% per annum payable semiannually is priced at $105.44031. A 2-year coupon bond with maturity value of $100 and a coupon rate of 10% per annum payable semiannually is priced at $90.2871. a By viewing the coupon bond as the sum of the ZCBs find the per annum yield compounded semiannually for the 6 months, 1 year, 18 months and 2 years ZCB. b A special 2-year bond has maturity value of $100 and coupons of $4, $9, $5, and $7 in that order. Use the ZCB yield curve data to compute the price of the bond. a.6 month_______, 12 month______18month________24month________ b.The price of the special bond is___________

Problem 9: Betty and Bob buy a 20-year bond with a coupon rate of 7% per annum payable semiannually and a face and redemption value of $1000 and which is priced to yield 10% per annum compounded semiannually. a.Algebraically compute the Terminal Wealth of the bond at the end of term. b.Using the closed form for Macaulay duration (See below and Section 90 Formulae 90) find the Macaulay duration. Your final answer should be in years and correct to 2 places after the decimal point. Bond (F = M) a._________________ b.______________________years

Problem 10: Which one of the following statements is False?

a.Yields decrease with term if the Yield Curve is inverted.

b.If the Face and Maturity Value of a bond are equal then, the Modified Coupon Rate equals the Coupon Rate.

c.The Macaulay Duration in years is twice the Macaulay Duration as per semiannual periods.

d.The Bond Equivalent Yield is a Yield per annum.

e.The greater the term of a bond the more price- sensitive it is to changes in interest rates. Extra Credit As interest rates change the price of a bond will change. The simple percent change, (P- P0)/ P0, is a measure of the sensitivity of price with respect to yield. Sensitivity is affected by term, n, and coupon rate, r. Is sensitivity directly related or inversely related to these characteristics of a bond?

Problem 11: Consider a coupon bond with a face and redemption value of $100 and a coupon rate of 10% per annum payable semiannually and a yield to maturity of 10% per annum compounded semiannually (whence a price of $100).

a.Bettys bond has a term of 5 years. Her yield decreases from 10% to 9% per annum compounded semiannually. Find the new price. What is the percentage change? New price ____________ Percent Change ___________

b.Bobs bond has a term of 10 years. His yield decreases from 10% to 9% per annum compounded semiannually. Find the new price. What is the percentage change? New price _____________ Percent Change ___________

c.Whose bond changed more i.e. whose bond was more sensitive. _________

Problem 12: Consider a coupon bond with a face and redemption value of $100 and a term of 5 years and a yield to maturity of 10% per annum compounded semiannually.

a. Berthas bond has coupon rate of 10% per annum payable semiannually. Her yield decreases from 10% to 9% per annum compounded semiannually. Find the new price. What is the percent change? New price __________ Percent Change _____________

b.Bill bond has a coupon rate of 5% per annum payable semiannually. His yield decreases from 10% to 9% per annum compound semiannually. Find the old price. Find the new price. What is the percent change? New price ___________ Percent Change ______________ c

c.Whose bond changed more, i.e. whose bond is more sensitive. ________