CHAPTER 10
BOND PRICES AND YIELDS
1.
Fill in the table below for the following zerocoupon 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 oneyear 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 zerocoupon 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%.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '11
 Hearth

Click to edit the document details