Question 2

1. You own a bond that pays $30 in annual interest, with a $1 000 par value. It matures in 20 years. Your required rate of return is 4%. Calculate the value of the bond.
2. JNBC Motor company issued bonds with a 10-year maturity par value of $1 000, a 10% coupon rate and semi-annual interest payments. If the bond was sold for $916.42, what was the YTM of JNBC bonds at the time of the issue?
3. Explain interest rate risk as it relates to premium and discount bonds.
4. A bank is offering a five-year term deposit that will pay 9% per annum compounded quarterly. If $180 000 was invested in this term deposit:

1. how much money will you have at the end of four years?
2. what is the EAR?