Keytochap5Edition5

Keytochap5Edition5 - Solutions to Chapter 5 Homework 1. a....

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Solutions to Chapter 5 Homework 1. a.Coupon rate = 6%, which remains unchanged. The coupon payments are fixed at $60 per year. b. When the market yield increases, the bond price will fall. The cash flows are discounted at a higher rate. c.At a lower price, the bond’s yield to maturity will be higher. The higher yield to maturity for the bond is commensurate with the higher yields available in the rest of the bond market. d. Current yield = coupon rate/bond price As coupon rate remains the same and the bond price decreases, the current yield increases. 8. The bond pays a coupon of 5.625% which means annual interest is $56.25. The bond is selling for: 106 13/32 = $1,064.0625 Therefore, the current yield is: $56.25/$1064.0625 = 5.29% The change from the previous day is 2/32, so the price was: 106 15/32 = $1,064.6875 11. a.With a par value of $1,000 and a coupon rate of 8%, the bondholder receives $80 per year. b.
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Keytochap5Edition5 - Solutions to Chapter 5 Homework 1. a....

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