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# copy Chpt07examples.xlsx - Q1 You bought a bond on January...

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Q1 You bought a bond on January 1st for \$1000 and sold it on Dec 31st for \$110 It had a coupon rate of 5%. What was your rate of return on the bond? Q2 A four year, \$1000 bond with an 8% coupon was just issued. Calculate the Price of the Bond today. If interest rates immediately fell to 7%, calculate the price of the bond. If interest rates immediately rose to 9%, calculate the price of the bond. Q3 You have a nine year bond with an 8% coupon (but it is paid semi-annually) What is the semi-annual coupon payment? If YTM rates are now 9% calculate the price of the bond.

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Q1 Coupon payment = interest = .05 × 1000 = 50 Capital gain = 1100 - 1000 = 100 Rate of return = interest + capital gainpurchase price = 50 + 100 / 1000 = Q2 Bond A - at 8% 80.00 * 3.312127 Bond A - at 7% 80.00 * 3.387211 Bond A - at 9% 80.00 * 3.23972 Q3 Coupon Rate = Coupon / Face Value = 80 / 1000 8% semi-annual, therefore two \$40 p < 9% annual or 4.5% semi-annual return; 9 years X 2 periods per year =

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• Spring '14
• 5%, \$1,000.00, 4.5%, Lump Sum PV, \$735.03

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