hw3sol - Investment Analysis (FIN 383) Fall 2010 Homework 3...

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Investment Analysis (FIN 383) Fall 2010 Homework 3 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Thursday, Oct 7. Late homework will not be graded. Name(s): Student ID
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Chapter 9 1. A corporate bond has a coupon rate of 8%, payable semiannually, a maturity of 20 years, and a yield to maturity of 9%. How much should you pay for this bond? a. $1080 b. $1000 c. $966 d. $908 1. d PMT = 40, FV = 1000, I/Y = 4.5, n = 40, CPT PV = -908 2. An annual coupon bond issue has a coupon rate of 8% and 10 years maturity. Determine this bond's current yield if its yield to maturity is 7%. a. 7.5% b. 7.9% c. 8.3% d. 8.8% 2. a FV = 1000, PMT = 80, N = 10, I/Y = 7, CPT PV = 1070.23, current yield = 80/1070.23 = 7.5% 3. A semiannual coupon bond is currently selling for $1,142.12. The bond has a maturity of 10 years and a yield to maturity of 7%. Determine the coupon rate of the bond. a. 6% b. 7% c. 8% d. 9% 3. d FV = 1000, I/Y = 3.5, N = 20, PV = -1142.12, CPT PMT = 45, Annual pmt = 90, coupon rate = 90/1000 = 9%. 4. A corporate bond has an annual coupon rate of 8%, payable semiannually, and a maturity of 25 years. Determine the bond's yield to maturity if its current yield is 6.36%. a. 3% b. 6% c. 8% d. 9% 4. b CY = 6.36%, PV (or price) = 80/0.0636 = 1257.86, FV = 1000, n = 50, PMT = 40, PV = -1257.86, CPT I/Y = 3, YTM = 6% 5. You just purchased an annual coupon bond for $817.84. The bond has a maturity of 15 years, a face value of $1,000, a coupon rate of 5%, and a yield to maturity of 7%. What is the bond's total rate of return for the year if the interest rate increases to 7.5% one year later? a. 9.79% b. 7.50% c. 3.75%
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d. 2.44% 5. d First, compute price one year from now P(1) FV = 1000, PMT = 50, n = 14, I/Y = 7.5, CPT PV = -787.77 So P(1) = 787.77 Total return = (50/817.84) + (787.77-817.84)/ 817.84 = 2.44% 6. You just purchased a semiannual coupon bond for $1,148.77. The bond has a maturity of 10 years, a face value of $1,000, a coupon rate of 8%, and a yield to maturity of 6%. What is the bond's yield to call if the bond is called back 4 years later with a call premium of $80? a. 9.79% b. 7.50% c. 3.75% d. 2.44% e. 5.6% 6. e PV = -1148.77, n = 20, FV = 1080, PTM = 40, CPT I/Y = 2.8, YTC = 5.6% 7. A bond's invoice price is its stated price plus ______________. a. the coupon interest b. the accrued capital gain c. the accrued coupon interest d. the accrued capital gain and coupon interest 7. c 8. In a period of particularly low interest rates, which of the following bonds is most likely to be called? a. Discount coupon bonds with 1 year maturity. b. Zero coupon bonds. c.
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This note was uploaded on 10/20/2010 for the course FIN FIN383 taught by Professor Duongnguyen during the Spring '09 term at UMass Dartmouth.

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hw3sol - Investment Analysis (FIN 383) Fall 2010 Homework 3...

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