Chapter 03 - Answers to Chapter 3 Questions 1. 935 =...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to Chapter 3 Questions 1. 935 = 75(PVIFA rr, 5 ) + 980(PVIF rr, 5 ) Ψ rr = 8.83% 2. 980 = 75(PVIFA Err, 3 ) + 990(PVIF 7 , 3 ) Ψ Err = 7.97% 3. V b = 1,000(.08) (PVIFA 9%, 10) + 1,000(PVIF 9%, 10) = $935.82 4. EXCEL Problem: Bond Value = $1,268.27 Bond Value = $1,169.36 Bond Value = $1,000.00 Bond Value = $862.01 5. $1,100 = 1,000(.12) (PVIFA ytm/2, 10(2) ) + 1,000(PVIF ytm/2, 10(2) ) => ytm = 2 10.37% 6. EXCEL Problem: Yield to Maturity = 9.87% Yield to Maturity = 9.19% Yield to Maturity = 7.69% Yield to Maturity = 5.97% 7. V b = 1,000(.07) (PVIFA 14%/4, 4(4) ) + 1,000(PVIF 14%/4, 4(4) ) = $788.35 4 8. $863.73 = 1,000(.08) (PVIFA 10%, n) + 1,000(PVIF 10%, n) => n = 12 years 9. a. V b = 1,000(.1) (PVIFA 6%/2, 10(2) ) + 1,000(PVIF 6%/2, 10(4) ) = $1,297.55 2 b. V b = 1,000(.1) (PVIFA 8%/2, 10(2) ) + 1,000(PVIF 8%/2, 10(4) ) = $1,135.90 2 c. From parts a. and b. of this problem, there is a negative relation between required rates and fair values of bonds. 10. a. Premium bond b. Par bond c. Discount bond d. Discount bond e. Premium bond f. Discount bond 11. a. 985 = 1,000(.09) (PVIFA ytm/2, 15(2) ) + 1,000(PVIF ytm/2, 15(2) ) Ψ ytm = 9.186% 2 b. 915 = 1,000(.08) (PVIFA ytm/4, 10(4) ) + 1,000(PVIF ytm/4, 10(4) ) Ψ ytm = 9.316% 4 c. 1,065 = 1,000(.11) (PVIFA ytm, 6 ) + 1,000(PVIF ytm, 6 ) Ψ ytm = 9.528% 17
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12. a. V b = 1,000(.06) (PVIFA 10%/2, 12(2) ) + 1,000(PVIF 10%/2, 12(2) ) = $724.03 2 b. V b = 1,000(.08) (PVIFA 10%/2, 12(2) ) + 1,000(PVIF 10%/2, 12(2) ) = $862.01 2 c. V b = 1,000(.10) (PVIFA 10%/2, 12(2) ) + 1,000(PVIF 10%/2, 12(2) ) = $1,000.00 2 d. From parts a. through c. in this problem, there is a positive relation between coupon rates and present values of bonds. 13. a. V b = 1,000(.06) (PVIFA 8%/2, 12(2) ) + 1,000(PVIF 8%/2, 12(2) ) = $847.53 2 b. V b = 1,000(.08) (PVIFA 8%/2, 12(2) ) + 1,000(PVIF 8%/2, 12(2) ) = $1,000.00 2 % change in bond value versus part (a) = ($1,000 - $847.53)/$847.53 = 17.99% c. V b = 1,000(.10) (PVIFA 8%/2, 12(2) ) + 1,000(PVIF 8%/2, 12(2) ) = $1,152.47 2 % change in bond value versue part (b) = ($1,152.47 - $1,000)/$1,000 = 15.25% d. From these results we see that as coupon rates increase, price volatility decreases. 14.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/22/2012 for the course FINA 210 taught by Professor Dakroub during the Spring '12 term at American University in Cairo.

Page1 / 6

Chapter 03 - Answers to Chapter 3 Questions 1. 935 =...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online