Homework 20

Homework 20 - for my bond on that date if the purchaser...

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Homework 20 1. The corporate bond shown below was issued on July 2, 1967 with a face value of \$1000. It has a maturity date of July 1, 1992 and a coupon rate of 4½%. Coupons are payable on January 1 and July 1 of each year. Assume I purchased this bond at par (i.e., “for face value”) on the day it was issued and held it to maturity. Calculate (a) the coupon amount and (b) the yield to maturity. 2. Let’s say I decided to sell my bond on July 2, 1974. At that time, similar bonds were providing a yield of 13.79% per year. (In 1974, inflation had jumped to more than 12% per year thanks to the Arab oil embargo, which quadrupled oil prices virtually overnight.) How much would I have received
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Unformatted text preview: for my bond on that date if the purchaser wanted a return of 13.79% per year? 3. Let’s say I decided not to sell my bond on July 2, 1974 after all. Instead, I waited until July 2, 1979 and sold my bond for \$913.75. What was my return on investment over the 12 years that I owned the bond? 4. The Arkansas State Development Finance Authority is currently raising money to build a cancer research center by selling zero-coupon municipal bonds. The bonds have a face value of \$100 and mature in July 2029. Yesterday, I could purchase them for \$43.44 each. What is the yield to maturity for these bonds? (Note, for our purposes, July 2029 is 17¾ years from now)....
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