Ch 15 Practice Problems-solution

Ch 15 Practice Problems-solution - The yield curve (yields...

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Ch 15 Practice Problems The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. Use them for 1-3. 1. What is, according to the expectations theory, the expected forward rate in the third year? A. 7.00% B. 7.33% C. 9.00% D. 11.19% E. none of the above
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881.68 / 808.88 - 1 = 9% 2 . What is the yield to maturity on a 3-year zero coupon bond? A. 6.37% B. 9.00% C. 7.33% D. 10.00% E. none of the above (1000 / 808.81) 1/3 -1 = 7.33% 3. What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par value = $1,000) A. $742.09 B. $1,222.09 C. $1,000.00 D. $1,141.92 E. none of the above (1000 / 742.09) 1/4 -1 = 7.74%; FV = 1000, PMT = 120, n = 4, i = 7.74, PV = $1,141.92
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4. Given the bond described above, if interest were paid semi-annually (rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be: A. Less than 12% B. More than 12% C. 12% D. Cannot be determined E. None of the above FV = 1000, PV = -850, PMT = 50, n = 40, i = 5.9964 (semi-annual); (1.059964)2 - 1 = 12.35%.
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Unformatted text preview: The yield curve (yields vs. maturities, all else equal) is depicted for U.S. Treasuries more frequently than for corporate bonds, as the risk is constant across maturities for Treasuries. 5. What should the purchase price of a 2-year zero coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000? A. $877.54 B. $888.33 C. $883.32 D. $893.36 E. $871.80 $1,000 / [(1.064)(1.071)] = $877.54 6. What would the yield to maturity be on a four-year zero coupon bond purchased today? A. 5.80% B. 7.30% C. 6.65% D. 7.25% E. none of the above. [(1.058) (1.064) (1.071) (1.073)] 1/4- 1 = 6.65% 7. Calculate the price at the beginning of year 1 of a 10% annual coupon bond with face value $1,000 and 5 years to maturity. A. $1,105 B. $1,132 C. $1,179 D. $1,150 E. $1,119 i = [(1.058) (1.064) (1.071) (1.073) (1.074)] 1/5- 1 = 6.8%; FV = 1000, PMT = 100, n = 5, i = 6.8, PV = $1,131.91...
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This note was uploaded on 01/26/2009 for the course FBE 441 taught by Professor Callahan during the Fall '07 term at USC.

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Ch 15 Practice Problems-solution - The yield curve (yields...

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