Extra Problems 4 b

Extra Problems 4 b - Calculate(a Kirsten&s internal...

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ACTSC 231 Extra Problems 4 b Note: You should always assume that bonds are redeemable at par and that coupons are paid semiannually unless otherwise stated. 1. Calculate the purchase price of the following bonds: (a) A $1000 bond pays semi-annual coupons at i (2) = 8% , is redeemable at par on Jan. 1, 2020 and was purchase on May 8, 2003 to yield i (2) = 7% : (b) A $5000 bond pays semi-annual coupons at i (2) = 5% , is redeemable at par on Oct 1, 2016 and was purchase on Apr. 17, 2003 to yield i (2) = 6% (c) A $10,000 bond pays semi-annual coupons at i (2) = 6% , is redeemable at $10,500 on Oct 1, 2021 and was purchase on June. 10, 2003 to yield i (2) = 5% 2. Kirsten buys a $10,000 bond with a coupon rate of 4% payable semiannu- ally. The bond is redeemable at par in 15 years. She purchased the bond at a price to yield 3.5% compounded semiannually. After three and a half years Kirsten sells the bond to yield 3.25% compounded semiannually.
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Unformatted text preview: Calculate: (a) Kirsten&s internal rate of return. (b) Assuming Kirsten reinvests each coupon at 2% compounded monthly, what is the annual e/ective rate of return earned by Kirsten over the 3.5 years? 3. Two bonds, each of face amount 100, are o/ered for sale at a combined price of 200 Both bonds have the same term to maturity but the coupon rate for the one is twice that of the other. The di/erence in price of the two bonds is 16. Prices are based on a nominal annual yield rate of 6% compounded semiannually. Find the coupon rates of the two bonds. 4. A 6% bond with face amount 1000 is redeemable in k years and is pur-chased for 1250. A 5% bond with the same face amount and the same redemption date as the ±rst bond has a purchase price of 1050. The nom-inal annual yield rate is the same for both bonds. Find that rate. 1...
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This note was uploaded on 02/07/2010 for the course ACTSC 231 taught by Professor Chisholm during the Spring '09 term at Waterloo.

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