Quiz 1 - FINANCE 100 Corporate Finance Professor Roberts...

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FINANCE 100 Corporate Finance Professor Roberts Solutions to Sample Quiz #1 NAME: SECTION: Question Maximum Student Score Q u e s t i o n 1 7 0 Question 2 30 TOTAL 100 Instructions:
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Question 1: (70 points) Consider the following prices for zero coupon bonds with $100 face value: Maturity Price 1 $95.2381 2 $88.9996 3 $82.7849 a) What is the yield to maturity of these bonds if the yield is compounded annually? (15 points) Solution: The present value formula for zero-coupon bonds is: () T R F B + = 1 0 . Solving for R gives: 1 / 0 = T B F R . Applying this formula to the above data gives: Maturity Yield 1 5.00% 2 6.00% 3 6.50% Some students may have used continuous compounding. This is clearly incorrect. Give 3 points if they work out the correct numbers using R=ln(F/B)/T (F=face value, B=bond
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Quiz 1 - FINANCE 100 Corporate Finance Professor Roberts...

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