METU, FEAS
ECON 311
Fall 2009
Elif AKBOSTANCI
Homework
I
(Due back on October 26, 2009)
Late returns will not be graded. Please clearly show your calculations and be neat! Make
sure that the homework you returned is your own work!
1.
Suppose that you are considering the purchase of a coupon bond that has a face
value of 10 000 TL, and 600 TL coupon payments and maturity of four years.
a. What is the bond worth today if the market interest rate is 6%? What is the bond’s
current yield?
b. Suppose that you have just purchased the bond and market interest rate falls to 5%
for the near future. What is the bond worth now? What is the current yield now?
c. Suppose that one year has elapsed, you have received a coupon payment of 600TL,
and the market interest rate is still 5%. How much would be the rate of return if you
decide to sell the bond?
d. Suppose that two years have elapsed since you bought the bond. Now suppose that
the market interest rate suddenly jumps to 10%. How much would another investor
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This note was uploaded on 05/26/2010 for the course ECON 311 taught by Professor Elif during the Spring '10 term at Middle East Technical University.
 Spring '10
 elif

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