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Chapter 10 Sample Questions

# Chapter 10 Sample Questions - CHAPTER 10 BOND PRICES AND...

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CHAPTER 10 BOND PRICES AND YIELDS 1. Fill in the table below for the following zero-coupon bonds, all of which have par values of \$1,000. Price Maturity (years) Yield to Maturity \$400 20 ? \$500 20 ? \$500 10 ? ? 10 10% ? 10 8% \$400 ? 8% 2. Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays \$1,000 at maturity. The second has an 8% coupon rate and pays the \$80 coupon once per year. The third has a 10% coupon rate and pays the \$100 coupon once per year. a . If all three bonds are now priced to yield 8% to maturity, what are their prices? b . If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? What is your rate of return on each bond during the one – year holding period? 3. A newly issued bond pays its coupons once a year. Its coupon rate is 5%, its maturity is 20 years, and its yield to maturity is 8%.

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