Determine how many years until the bond matures.

Transcription

1 Chapter 6 Section 2 1. Hanjie purchases a 10 year zero coupon bond for 500 and will be paid 1000 at end of 10 years. Calculate the annual effective return received by Hanjie. 2. A 20 year bond with a par value of 10,000 will mature in 20 years for 10,500. The coupon rate is 8% convertible semi-annually. Calculate the price that Abhijit would pay if he bought the bond to yield 6% convertible twice a year. 3. A 20 year bond with a 20,000 par value pays semi-annual coupons of 500 and is redeemable at par. Jaiyi purchases the bond for 21,000. Calculate Jaiyi s semiannual yield to maturity on the bond. 4. Marissa purchases 20 year bond. The bond matures for 100,000. The bond has annual coupons. The first coupon is The second coupon is The third coupon is The coupons continue to increase until the 20 th coupon is 20,000. Marissa purchase the bond to yield an annual effective rate of 8%. Calculate the price that Marissa pays for the bond. 5. Jie bought a 10 year bond four years ago. The bond matures for 100,000 which is the par value. The bond has a coupon rate of 9.2% convertible semi-annually. Jie paid 102,000 for the bond. Today the bond has exactly six years until maturity. Calculate the price at which Jie could sell the bond if: a. The bond is sold to yield the same yield that was used to when Jie bought the bond. b. The bond is sold to yield 8% convertible semi-annually. 6. Chloe buys a bond to yield 8% convertible semi-annually for a price of 19, The bond has a coupon rate of 7% convertible semi-annually. The bond matures for 20,000 which is its face value. Determine how many years until the bond matures. 7. Charles buys a 50 year bond with semi-annual coupons. The bond matures for Each semi-annual coupon is 5 during the first year. Each semi-annual coupon is 10 during the second year. The semi-annual coupon continues to increase each year until each semi-annual coupon is 250 in the 50th year. Calculate the price that Charles should pay to receive a yield of 10% convertible semi-annually. 8. An 8 year bond has a par value of X. The redemption value is X+500. The bond pays quarterly coupons at a rate of 6% convertible quarterly. Jacque bought this bond for to yield 8% convertible quarterly. Calculate X.

2 Chapter 6, Section 3 9. A five year bond with a par value of 1000 pays annual coupons of 10%. The bond has a maturity value of Calculate the premium or discount when this bond is purchased to yield 9% annually. (Be sure to state whether it is a premium or a discount.) 10. Justin buys a bond at a discount of 500. The bond is a 15 year bond with a par value of 8,000 and a coupon rate of 6% convertible semi-annually. The bond matures for its par value. Calculate the yield convertible twice a year on this bond. 11. Hannah is considering buying two bonds both priced to produce the same yield rate. The first bond is a 20 year bond with annual coupons of 500. The bond matures for 10,500. The purchase price of this bond is 7,000. The second bond is a 15 year bond which matures for 8,000 and pays annual coupons of 100t in year t. In other words, the coupon is 100 in the first year, 200 in the second year, etc until it is 1,500 in year 15. Calculate the amount of premium or discount in the purchase of the second bond. Be sure to state whether it is discount or premium. Chapter 6, Section A 20 year bond with a par value of 10,000 will mature in 20 years for 10,500. The coupon rate is 8% convertible semi-annually. The bond is bought to yield 6% convertible twice a year. Determine the book value of the bond immediately after the 10 coupon is paid. 13. A five year bond with a par value of 1000 will mature in 5 years for Annual coupons are payable at a rate of 6%. Calculate the Bond Amortization Schedule if the bond is bought to yield 8% annually. 14. Calculate the Bond Amortization Schedule if the bond in Problem 13 is bought to yield 5%. 15. A 40 year bond with a par value of 5000 is redeemable at par and pays semiannual coupons at a rate of 7% convertible semi-annually. The bond is purchased to yield 6% convertible semi-annually. Calculate the amortization of the premium in the 61 st coupon.

3 16. A bond with a par value of 1000 is bought to yield 8% convertible semi-annually. The bond pays semi-annual coupons at a rate of 6% compounded semi-annually. The bond matures for C. If the Book Value of the Bond immediately after the 5 th Coupon is 1100, fill in the following table: Time Coupon Interest Principal Book Value 5 th Coupon th Coupon 17. The book value of a bond immediately after the 13th coupon is 9, The bond has annual coupons of 700. The interest in the 10th coupon is while the interest in the 20th coupon is Calculate the book value immediately after the 14th coupon. 18. Yifan purchases 20 year bond. The bond matures for 100,000. The bond has annual coupons. The first coupon is The second coupon is The third coupon is The coupons continue to increase until the 20 th coupon is 20,000. Yifan purchase the bond to yield an annual effective rate of 8%. Calculate the principal adjustment in the 18 th coupon. Chapter 6, Section A 20 year callable bond has a redemption value of 10,000. The bond pays semiannual coupons of 500. The bond is callable at the end of the 12 th, 14 th, and 16 th years. The call price is listed in the following table. Call Date Call Value 12 th Year 11, th Year 10, th Year 10,650 Calculate the price that Nancy should pay in order to assure a yield of 8% convertible semi-annually.

4 20. Eric is buying a 10 year callable bond with semi-annual coupons of 400 and a maturity value of 5,000. The bond may be called at the end of 7 years with a call value of 5,500. It may also be called at the end of 8 years with a call value of 5,200. Determine the price that Eric should pay to assure a yield of 5% convertible semiannually. 21. A twenty year bond is callable at the end of ten years or at the end of fifteen years. The bond pays annual coupons of 100 and matures for There is no call premium. The cost of the bond is 800. Calculate the minimum yield on this bond.

5 Answers % 2. 12, convertible semi-annually , a. 101, b. 105, years Discount of % convertible semi-annually 11. Discount of , No Answer Provided 14. No Answer Provided Time Coupon Interest Principal Book Value 5 th Coupon th Coupon , %