To compute the remaining maturity solve for t in the

To compute the remaining maturity, solve for t in the following equation:
Using a financial calculator, compute the remaining maturity by entering PV = (−)741.46, FV =
1,000, PMT = 76, i = 10.5; compute n = 28 years.
Consider three bonds with 5.0% coupon rates, all selling at face value. The short-term bond has
a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond
has maturity 30 years.
a.
What will be the price of each bond if their yields increase to 6.0%? (Do not round
intermediate calculations. Round your answers to 2 decimal places.)
$
b.
What will be the price of each bond if their yields decrease to 4.0%? (Do not round
intermediate calculations. Round your answers to 2 decimal places.)
4 Years 8 Years 30 Years
Bond price $ $ $
Explanation:
a. & b.
Price of Each Bond at Different Yields to Maturity

Maturity of Bond
Yield 4 Years 8 Years 30 Years
4.0%
$
1,036.3
0
$
1,067.3
3
$
1,172.9
2
5.0%
$
1,000.0
0
$
1,000.0
0
$
1,000.0
0
6.0%
$
965.35
$
937.90
$
862.35
22.A 2-year maturity bond with face value of $1,000 makes annual coupon payments of $114
and is selling at face value. What will be the rate of return on the bond if its yield to maturity at
the end of the year is (Do not round intermediate calculations. Round your answers to 2
decimal places.)
Rate of Return
a. 6% %
b. 11.4% %
c. 13.4% %
Explanation:
Some values below may show as rounded for display purposes, though unrounded numbers
should be used for the actual calculations.
The price of the bond at the end of the year depends on the interest rate at that time. With 1 year
until maturity, the bond price will be $1,114/(1 + r ).
a.
Price = $1,114/1.06 = $1,050.94
Rate of return = [$114 + ($1,050.94 − $1,000)]/$1,000 = 0.1649 = 16.49%
b.
Price = $1,114/1.114 = $1,000
Rate of return = [$114 + ($1,000 − $1,000)]/$1,000 = 0.1140 = 11.40%
c.
Price = $1,114/1.134 = $982.36
Rate of return = [$114 + ($982.36 − $1,000)]/$1,000 = 0.0964 = 9.64%
A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer

yields to maturity of 6.3%. A-rated bonds sell at yields of 6.6%. Assume a 10-year bond with a
coupon rate of 5.8% is downgraded by Moody’s from Aa to A rating.
a.
Calculate the initial price. (Do not round intermediate calculations. Round your answer
to 2 decimal places.)
Initial price $
b.
Calculate the new price. (Do not round intermediate calculations. Round your answer to
2 decimal places.)