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9.6 End-of-Chapter Problems

PLEASE NOTE: This book is currently in draft form; material is not final.

Exercises

  1. A 4.25% coupon bond is currently yielding 4.5%. If the par value of this bond is $1,000, what is the annual coupon payment?
  2. If comparable bonds are currently yielding 3.5%, what coupon rate should a bond have if the company wishes to issue it at par?
  3. If the par value of a 3% semi-annual coupon bond is 500,000 yen, what is the payment received every six months?
  4. You receive $50 every half year from your XYZ corporate bond. It has a face value of $1,000. What is its coupon rate?
  5. Two bonds are rated B+ and BB−. Which is probably the riskier investment? Which would you expect to have the higher yield? Is it possible to predict which would have the higher coupon rate?
  6. If the real rate of return is 2.5% and the expected inflation is 4%, what is the approximate real interest rate? What is the more accurate rate found using the Fisher equation?
  7. If the risk free rate is 5% and a security is yielding 9%, what is the risk premium?
  8. If security A is yielding 7% and security B is yielding 7.5%, which has the larger risk premium (if we are comparing to the same risk free asset)?
  9. An 11% bond pays its coupon annually and has 12 years left to maturity. If its quoted price is 106.50, what is its yield to maturity?
  10. An 8% bond pays its coupon annually and has 9 years left to maturity. If its current YTM is 8.16%, what is its quoted price?
  11. A bond has 15 years left to maturity and pays a semi-annual coupon. If its current YTM is 7.5% and its quoted price is 82.17, what is its coupon rate?
  12. A bond was issued one year ago at par with a 4% semi-annual coupon. Today, the YTM is 5%. What should be its price?
  13. Bond A has an annual coupon of 6% and bond B has an annual coupon of 9%. Both have 7 years until maturity. The market demanded interest rates for these bonds moves from 4.5% to 5.5%. What are the prices for the bonds before and after the interest rate change? Which bond is more sensitive to interest rate changes (that is, which had the greater price increase as a percentage of the pre-change price)?
  14. A zero coupon bond is a bond that doesn’t pay periodic coupons; it only pays the face value at maturity. A $1,000 par zero coupon bond matures in 6 years. If comparable bonds have a YTM of 7%, what should be its quoted price?