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Unformatted text preview: E120 Homework 3 Due 07/15/2010 Problem 1: A 30-year bond with a face value $1000 has a coupon rate of 5.5%, with semiannual payments. 1. What is the coupon payment for this bond? 2. Draw the cash flows for the bond on a timeline. Problem 2: Assume that a bond with make payments every six months for 20 periods (using six- month periods): (0, $20, $20, ..., $20, $20+$1000). 1. What is the maturity of the bond (in years)? 2. What is the coupon rate (in percent)? 3. What is the face value? Problem 3: Suppose a ten-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1034.74. 1. What is the bonds yield to maturity (expressed as an APR with semiannual com- pounding)? 2. If the bonds yield to maturity changes to 9% APR, what will the bonds price be? Problem 4: Suppose a five-year, $1000 bond with annual coupons has a price of $900 and a yield to maturity of 6%. What is the bonds coupon rate? Problem 5: Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. 1. Is this bond currently trading at a discount, at par, or at a premium? Explain. 2. If the yield to maturity of the bond rises to 7.00% (APR with semiannual com- pounding), what price will the bond trade for? Problem 6: Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it....
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