You own a bond that pays $50 in annual coupon payments, with a $1000 par value. It matures in 20 years. Your required rate of return is 8%.

2.

3.

4.

JMMB has bonds on the market making annual payments with 15 years to maturity and selling for $970. At this price, the required rate of return 12%. What is the current yield on this bond? (7 marks)

Merton Enterprise has bonds on the market making annual payments with 13 years to maturity and selling for $850. At this price, the bond yields 8.2%. What must the coupon rate be on this bond? (5 marks)

a) b) (i) (ii)

Calculate the value of the bond. (4 marks) Calculate the value of the bond if your required rate of return:

increases by 7%

decreases by 2%

You own a bond that pays $50 in annual coupon payments, with a $1000 par value. It matures in 20 years. Your required rate of return is 8%.

Calculate the value of the bond. (4 marks) Calculate the value of the bond if your required rate of return:

increases by 7%

decreases by 2%