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FI515_Homework3_BrianLin

# FI515_Homework3_BrianLin - Brian Lin D01278742 Week 3...

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Brian Lin D01278742 Week 3 Homework Chapter 5 Homework Question 5-1 Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a \$1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? P = PV(9%,12,8%*1000,1000) P = \$928.39 Question 5-2 Wilson Wonder’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a \$1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of \$850. What is their yield to matury? YTM = RATE(12,10%*1000,-850,1000) YTM = 12.48% Question 5-6 The real risk-free rate is 3% and inflation is expected to be 3% for the next two years. A 2- year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security? r* = 3% IP = 3% r rf = (r* + IP) r rf = (3% + 3%) r rf = 6% r t = r rf + MRP 6.3% = 6% + MRP MRP = 0.3% Question 5-7 Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of \$1,000, and a yield to maturity of 8.5%.

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