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Consider a bond with a 7 percent semi-annual coupon and a face value of $1000. Complete the following table. Note that yield to maturity is quoted...

This question was answered on Mar 17, 2010. View the Answer
1. Consider a bond with a 7 percent semi-annual coupon and a face value of $1000. Complete the following table. Note that yield to maturity is quoted annually.
Years to Maturity -Yield to Maturity(percent)-Current Prices
3 5
3 7
6 7
9 8
9 950

2. One-year T-bill rates over the next four years are expected to be 3%, 4%, 5%, and 5.5%. If four-year T-bonds are yielding 4.5%, what is the liquidity premium on this bond?

3. If a 90 day Canadian promissory note for $1,000 is sold for a 1% discount. What is its effective yield? Note all yields are quoted annually.

4. Accrued interest: If there are 183 days between interest settlement dates and it is 50 days since the last payment. The coupon rate is 3.5%. The quoted price is $950. The face value is $1000. What is the clean price? What is the accrued interest? What is the price that investors pay?

5. A bond pays semi-annual coupon of $40. In half a year, price increases from $950 to $1000. a) what is the capital gain yield? b) what is the income yield? c) what is the holding period return in this half a year?

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This question was asked on Mar 16, 2010 and answered on Mar 17, 2010.

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