Problem 1 Price of a bond  

Suppose today is the first day after the emission of a bond with a face value of $1000, a coupon rate of 8% paid annually, with a maturity of 10 years. If the yield to maturity is 8%, calculate the price of the bond.

A. $877.11 B. $1,000.00 C. $1,134.20 D. $1,536.81 

Problem 2 Yield to maturity  

Suppose a 8-year, 12% annual coupon, $1,500 par value bond has a price of $1,200. Calculate the yield to maturity.

A. 6.69%. B. 10.48%. C. 13.73%. D. 16.71%. 

Problem 3 Calculating the coupon payment  

Suppose your corporation want to rise 1500,000 for 12 years and will issue annual bonds with a face value of 1,000 each one. You know that the market will ask a yield of 11%. The market price of each bond is 750. Calculate how much money you will at the end of each year to pay the emissions coupons.

A. $220,000.00 B. $200,000.00 C. $142,986.36 D. $107,239.77 

Problem 4 Call price  

Suppose today is the first day after the emission of a bond (that can be called at the 5th year) with a face value of $1000, a coupon rate of 8% paid annually, with a maturity of 10 years. If the yield to maturity is 9% APR, calculate the price if the bond will be called at the 5th year.

A. $935.82 B. $961.10 C. $1,000.00 D. $1,038.90 

Problem 5 The decision to call or not to call  

Suppose a bond with a face value of $1000, a coupon rate of 8% paid annually, with a maturity of 10 years. The bond can be called at the 5th year at a call price of $1080. Originally the interest rate was 9%. If just the first day after the emission of the bond the interest rate fall to 5%, what will happen?

1

Hint: Note that is the corporation who take the decision to call or not to call. Note that the price of the bond is the present value of the flow that will be paid by the corporation to the bondholder, then the lower the present value, the better for the corporation.

A. The bond will be called. B. The bond wont be called. C. Will the same. D. It is not possible to determine.