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Chapter 10 4) A coupon bond paying semiannual interest is reported as having an ask price of 117% of it $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond? 9) A bond with an annual coupon rate of 4.8% sells for $970. What is the bonds’ current yield? 13) Treasury bonds paying an 8% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if they paid their coupons annually? 26) A two year bond with par value $1,000 making annual payments of $100 is priced at $1,000. What is the yield to maturity of the bond? What will be the realized compounded yield to maturity if the one year interest rate next year turns out to be ( a ) 8% ( b ) 10% ( c ) 12%? Chapter 11 4) A bond currently sells for $1,050 which gives it a yield to maturity of 6%. Suppose that if the yield increases by 25 basis points, the price of the stock falls to $1,025. What is the duration of this bond? 8) Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6%. What is the duration if the yield to maturity is 10%? 21) Find the convexity of a 7- year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually (Hint: You can use the spreadsheet from this chapters Excel Application on convexity, setting cash flows after year 7 equal to zero.) see attached picture 25) Currently the term structure is as follows: one year bond yields 7%, two year bonds yield 8%, three year bonds and greater maturity bonds all yield 9%. You are choosing between one – two and three year maturity bonds all paying annual coupons of 8% once a year. Which bond should you buy if you strongly believe that at year end the yield curve will be flat at 9%? CFA #1) Rank the following bonds in order of descending duration. Bond Coupon Time to Maturity Yield to Maturity A 15% 20 years 10% B 15 15 10 C 0 20 10 D 8 20 10 E 15 15 15 Purchase the answer to view it
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