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